Guidelines banning crypto promotions can be fine-tuned and supported by consumer education

SINGAPORE'S new guidelines prohibiting public marketing of crypto trading could result in the industry exercising more caution towards retail investors in the short term - while the much-coveted licences for digital payment token service providers hang in the balance - but they may need some fine-tuning if they are to be effective in the long run.

The Monetary Authority of Singapore (MAS) on Monday (Jan 17) launched guidelines preventing crypto firms from promoting their services in public areas and through third-party engagements, such as social-media influencers.

Singapore's financial regulator has always maintained that crypto trading is a highly risky business unsuitable for the man on the street, while at the same time making known its ambitions to be a global crypto hub. The guidelines come after it has observed companies "actively promoting" their services through online and physical advertisements or via ATMs in public areas, MAS said.

But there are no statutory penalties for non-compliance.

Regulated entities "generally understand" that they are expected to comply with MAS guidelines, the regulator said. More importantly, MAS will take into consideration these new guidelines while considering whether to grant licences under the Payment Services Act.

About 112 applications for licences to provide digital payment token services are currently still under review. But once their applications are processed - and some have said that there may be pressure for MAS to act more quickly in this regard - the players may have fewer reasons to comply.

In response to media queries, MAS did say that it will "monitor the market" and "consider issuing legal requirements if necessary". But there is no clarity on when that trigger could be pulled.

Growing concern

The promotion of crypto services by companies and influencers has already led to rebuke from authorities - and in some cases, lawsuits - in other jurisdictions. Several countries have also moved to rein in crypto promotions.

Spain's national securities market commission announced, also on Monday, that influencers and their sponsors must notify authorities in advance of mass crypto advertising campaigns that will reach at least 100,000 people.

Crypto advertising activities across the board will be subject to "supervisory action", the Spanish financial regulator said.

Unlike the blanket ban in Singapore, the new rules attempt to define what's allowed. For instance, references to high past returns should be avoided and the ads should include a warning and risks of the product they advertise.

Non-compliance would be considered an infringement of the Securities Market Act and could draw sanctions of up to 300,000 euros (S$459,000), or double that of the profit obtained or of the equity capital of the infringing company.

The United Kingdom's Treasury said on Tuesday that it would bring crypto ads under the scope of existing legislation, in line with standards for other financial promotions such as stocks, shares, and insurance products. This comes after an industry consultation that began in the summer of 2020.

Under these regulations, a business cannot promote a financial product unless they are authorised by regulators, or the content of the promotion is approved by a firm which is.

Crypto scene still developing

The regulations are probably coming in good time, as advertising for crypto trading websites has been sprouting across Singapore. Found on the roads, in movie theatres or at train stations, these ads are clearly targeting the mass market.

But attempts to regulate consumer protection will be limited in the crypto space because its pace of development quickly outstrips lawmakers' ability to respond.

The current regulation prohibits advertising and engagement with influencers, but the rules are slightly less clear in their application towards influencers who are not contracted by crypto companies.

It can also be hard to determine when engagement crosses the line between informing or educating their followers on this emerging space, which is a form of engagement that should be encouraged, versus irresponsible promotion.

In fact, there is something to be said about encouraging advertising and engagement that educates the public.

Cryptocurrencies have surged in popularity over the past year, particularly among younger investors. How much these investors have been influenced by advertising and promotion spend on the part of crypto trading platforms is hard to say, but limiting further such engagement may do little to discourage them from putting more money into this asset class.

What may work better is more education. In the capital markets, investors are required to check certain boxes - such as in terms of prior trading experience, education or job expertise - before they can trade certain products deemed to be less widely understood by retail investors. Those who do not meet these criteria have to undergo knowledge assessments. Some products are only available to investors with greater financial means.

Those who hold capital markets licences in Singapore will follow such regulations in order to keep their licences. But these standards were developed over time, and in consultation with industry players.

Stands towards crypto platforms and cryptocurrencies should take a similar approach. More consultation is necessary, as well as a greater understanding of the market. As the crypto market matures, regulation needs to do the same.

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