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After European consumer organisation BEUC protested to the European Commission and consumer authorities that Instagram, Alphabet's YouTube, TikTok, and Twitter promote crypto assets misleadingly, the sites may face regulatory action.
That comes on the heels of news that the UK banking regulator's harsher marketing restrictions would give British crypto asset buyers a 24-hour "cooling-off" period starting in October. The UK banking authority previously banned industry-popular "refer a friend" incentives for crypto asset marketing.
Last month, the EU implemented MiCa, the first comprehensive crypto-asset legislation.
BEUC filed a lawsuit alleging that social media platforms' false crypto asset ads expose consumers to considerable harm, including financial loss. Advertising and influencers were responsible, said the group.
"These social media companies are responsible for allowing misleading advertisements of crypto assets ('crypto') to multiply on their platforms (both through advertising and influencers). This constitutes an unfair commercial practice, as it exposes consumers to serious harm, i.e., the loss of significant amounts of money," said BEUC in a statement.
It requested the Consumer Protection Cooperation Network to force internet platforms to establish tougher crypto advertising regulations and prohibit influencers from deceiving customers.
"Consumers are increasingly being promised 'get rich quick' investments by ads and influencers on social media. Unfortunately, in most cases, these claims are too good to be true, and consumers are at a high risk of losing a lot of money without recourse to justice," said BEUC director general Monique Goyens.
"Crypto will be regulated soon with the new Market in Crypto Assets Regulation, but this legislation does not apply to the social media companies benefiting from the advertising of crypto at the expense of consumers. This is why we are turning to the authorities in charge of protecting consumers to ensure Instagram, YouTube, TikTok, and Twitter fulfil their duty to protect consumers against crypto scams and false promises," she added.
UK Watchdog's New Crypto Marketing Rules
Britain aims to regulate crypto assets under a new financial services law this year, and the new crypto regulations are similar to those imposed by the FCA last year to curb conventional finance advertising for high-risk investments.
"It is up to people to decide whether they buy crypto. But research shows many regret making a hasty decision. Our rules give people the time and the right risk warnings to make an informed choice. Consumers should still be aware that crypto remains largely unregulated and high risk. Those who invest should be prepared to lose all their money," warned Sheldon Mills, executive director for consumers and competition at the FCA.
"The crypto industry needs to prepare now for this significant change. We are working on additional guidance to help them meet our expectations," added Mills.
A recent FCA survey shows that UK crypto ownership quadrupled to 10% in 2021–2022.
The FCA stated the cooling-off period begins when a potential investor requests more crypto marketing materials. The investment promoter must answer after 24 hours.
Cryptocurrency regulators worldwide are cracking down on money laundering, investor protection, and fraud.
The EU enacted its Markets in Cryptoassets (MiCA) law, while the UK is drafting broader crypto asset rules.
Roundup: US Crackdown on Crypto Firms
The US securities watchdog has unleashed an offensive on the crypto industry, filing some 130 charges, forcing smaller firms to shut shop and others to move out of the US or settle. Of those, two important SEC cases filed this week might shape the industry's future.
Crypto is currently a US$1 trillion industry, primarily unregulated, after starting from nothing in 2009-10. Crypto exchanges argue that their tokens, unlike securities, are not subject to ordinary restrictions.
US regulators disagree.
Under SEC Chair Gary Gensler, nominated by US President Joe Biden in 2021, it has moved to exert its control over crypto exchanges by saying that its tokens are securities and must be registered with the regulator like others and so should their exchanges.