Herbert Smith Freehills | Sue Gilchrist, Steve Wong and Byron Turner | Aug 9, 2022

Takeaways

As cryptoassets continue to be marketed to consumers, for example in the form of utility tokens or “fan tokens”, there will be increasing attention by regulators and competitors on these marketing activities. The ACCC has recently highlighted advertising in the digital economy as an enforcement priority for the upcoming year. Businesses involved in the marketing of cryptoassets and related products will need to consider marketing strategies in light of consumer protection laws and advertising regulations. This will present a challenge in appealing to the target audience whilst also acknowledging the complexity of cryptoassets as investment products.

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The lack of specific regulation governing cryptoassets is also well-documented. In Australia, cryptoassets are not universally recognised as financial products governed by key regulators, including ASIC and the ACCC, and so any regulation remains ad hoc despite ongoing discussion with industry stakeholders. The absence of specific regulation leaves a potential void for the exploitation of consumers, particularly due to the complexity of cryptoassets and the markets on which they are traded. However, existing general consumer protection laws and advertising regulations remain capable of being adapted for application to cryptoassets to address such issues.

Case Study:   Arsenal FC Fan Tokens ($AFC)

Fan tokens are a type of cryptoasset that can be purchased by fans (eg of a sports team) and permit their holders to access a variety of fan-related membership perks such as voting on club decisions, rewards, merchandise designs and unique experiences. A recent example in Australia was the Formula 1 fan token released for the Australian Grand Prix in April 2022, which offered tiered access to exclusive fan experiences.

Arsenal Football Club plc (Arsenal) partnered with Socios to provide the ‘$AFC Fan Token’, as well as a digital platform (via the Socios app) for fan engagement, where fans could interact and collect tokens to influence and engage with club decisions.

In December 2021, the UK Advertising Standards Association called out Arsenal for misleading advertising in relation to the tokens. The complaint centred around various marketing materials, including:

1. a Facebook video post in August 2021, that stated “$AFC in now live $CHZ” and “[Arsenal players] Ben White, Calum Chambers and Kieran Tierney have had their say … But what song do you want to hear when we win? Download the Socios app to get your token and vote”; and
2. a website titled “$AFC Fan Token: Everything you need to know” that included information explaining the Arsenal Fan Token and the underlying benefits.

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ASA ultimately upheld the complaint on all grounds. In finding that the advertisements were irresponsible, it took into account guidance from financial regulators in the UK that classed redeemable utility tokens as cryptoassets and a form of investment product.

On a similar basis, the advertisements were held to be misleading due to a failure to give warnings of the associated investment risks, including the risk that the value of the tokens could go down as well as up, and also that cryptoassets were unregulated in the UK. The fact that the tokens could only be obtained by exchanging with another cryptocurrency that needed to be purchased separately was material information that should have been disclosed.

On this basis the advertisements were found to breach various provisions of the non-broadcast advertising code.