India is gradually emerging as the new Cryptocurrency hub. Data indicates that India has over 100 million crypto users comprising 7.3% of the country's total population1. The popularity has not only spread through metropolitan cities but has also had an equitable rise in users from Tier 2 and Tier 3 cities. Further, there has been a corresponding increase in advertisements by Virtual Digital Asset (VDA) providers.
This high level of interest both from consumers as well as VDA providers brings to attention the regulatory gap in the supervision of advertising content, as compared to, for instance, that in place for other forms of investment like Mutual Funds (MFs), etc., where the Securities and Exchanges Board of India (SEBI) stringently monitors and regulates MFs through their advertising and disclosure guidelines2.
Given that all financial products are subject to market variables and the associated risks, this gap in regulation of advertising norms for VDA's has left consumers vulnerable and at the risk of exploitation.
Legal landscape so far
The Hon'ble Supreme Court in Internet and Mobile Association of India v. Reserve Bank of India3 (on the matter of an RBI Circular4 seeking ban on cryptocurrencies) re-emphasized this need for a statutory framework for the regulation of VDAs and highlighted that consumer protection is a key concern in this regard.
Specifically, as regards advertisements for VDA, a petition was filed before the Hon'ble Delhi High Court in July 2021, wherein concerns were raised on the improper and unstandardized use of disclaimers in crypto advertisements. In this ongoing case5, notices have been issued to leading crypto exchanges i.e. WazirX, CoinDCX and CoinSwitch Kuber along with SEBI and the Department of Information and Broadcasting.
In the Union Budget 2022, Section 2 of the Income-Tax Act, 1961 is proposed to be amended to include the definition of VDA along with providing for a separate regime for taxation of VDAs. While commenting on the same, the FM however, clarified that these amendments do not amount to legalization of VDAs.
Recent ASCI Guidelines
On 23rd February, 2022 the Advertising Standards Council of India (ASCI) released the 'Guidelines for Advertising Virtual Digital Assets and Linked Services'6 ("The Guidelines").
The Guidelines are to be applied across all advertisements for VDAs (whose definition is identical to the definition under Income-Tax Act) released on or after 1st April, 2022. Further, non-compliant advertisements must be removed from circulation on or before 15th April, 2022. Going forward, all advertisements must carry the disclaimer:
"Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions."
Conditions for presenting the aforementioned disclaimer have also been put forward - in print/online/audio/video formats. The Guidelines are to be read with the ASCI Code which inter alia specifies the font, color-contrast, positioning and speed which is to be applied across all advertisement formats. Conditions on marketing via social media posts and stories have also been provided for.
Due to the opacity, novelty and lack of information currently characterizing the industry, ASCI has further outlined guidelines which aim to prevent companies from giving unverified assurances to consumers. Data associated with risks or past performance presented in a biased, misleading manner and for periods under 12 months is not permitted to be marketed. Products shall only be marketed on clear, factual and current information with no promise of future profits.
The comparison to other asset classes and the use of words associated to regulated products like "currency", "securities", "custodian" and "depositories" is also not permitted. This raises the question on whether this provisionally ends the ongoing debate of classifying VDAs as securities, thus ruling it out of the regulatory scope of SEBI. However, it must be noted that ASCI is a self-regulatory body and this may not amount to any governmental position on the same.
The Guidelines also include conditions for prominent personalities who are promoting VDA products. They are responsible for performing due diligence on the content being promoted.
CoinDCX already being a member of ASCI, along with many other industry leaders in India, have applauded the introduction of the Guidelines while seeing it as a step in the right direction.
Elsewhere in the world
It is also interesting to note that the Monetary Authority of Singapore has also recently (on 17th January, 2022) issued guidelines to discourage Digital Payment Token (DPT) providers from advertising to the general public in all mediums. Also, the marketing of DPTs by celebrities has also been banned. UK's advertising watchdog, Advertising Standards Authority placed all crypto-asset advertising on 'Red Alert' and subsequently issued its own advisory guidelines7 on 14th February 2022. Spain's National Securities Market Commission has announced that all advertisements from 17th February, 2022 must carry the disclaimer "investments in crypto-assets are not regulated. They may not be appropriate for retail investors and the full amount invested may be lost." They also require influencers to notify the commission and issue the disclaimer before promoting such content. This trend is indicative of the international thinking towards regulating VDA advertising in recent months.
Noncompliance of ASCI Guidelines
For advertisements published in contravention to the Guidelines, ASCI encourages the public to file complaints which shall be examined and investigated by its Consumer Complaints Council (CCC) through its standardized complaint redressal procedure. Notably, the powers of ASCI have been legally recognized for cable television services by the Ministry of Information and Broadcasting through the insertion of Rule 7(9) in the Cable Television Networks (Regulation) Rules, 19948. This insertion provides that no advertisement violating the ASCI Code shall be carried in the cable service. If the ASCI through its CCC finds merit in any complaint, it may recommend rectifications, which if un-complied with can be forwarded to an Authorizing Officer (AO) under the Cable Television Network Act, 1995 (Cable Act). The AO is empowered to prohibit the broadcast of such an advertisement9. This is however applicable only for those companies which fall under the Cable Act. For advertisements across other mediums, ASCI does not have any legally recognized powers for complaints redressal or the removal of advertisements from circulation.
Consumer Protection Act 2019
This raises the question of alternative legal remedies for protection against misleading and false advertisements. The Consumer Protection Act 2019 came into effect on 20th July 2020. It provides for the creation of the Central Consumer Protection Authority (CCPA), which includes in its scope of activities the regulation of misleading advertisements which infringe upon the rights of consumers. The CCPA is empowered to (including suo moto) issue directives to entities to discontinue or modify advertisements. Entities can face fines up to INR 10 lakh and two years' imprisonment with more severe punishments for repeat offenders. As per reports, from inception till August 2021, CCPA has taken suo moto cognizance and issued 27 notices for deceptive, misleading advertisements10. It is also possible that ASCI reports a non-compliance to CCPA who can then take cognizance of the matter and initiate legal proceedings against the violators.
The Hon'ble Finance Minister had last year indicated that the government was studying the guidelines by ASCI on VDA advertisements so a position on how to regulate such advertisements could be taken. Now that the Guidelines have been issued, these are likely to be an important reference point for the government while regulating VDA product advertisements in the country. Some may view the Guidelines as a potential testing ground for building a regulatory framework for advertising of VDA.
2. SEBI Circular Nos. CIR/IMD/DF/23/2017 and Cir/ IMD/ DF/13/ 2011
3. (2020) 10 SCC 274
5. Aayush Shukla & Anr Vs. Ms Wazir X & Ors W.P.(C) 6496/2021
8. G.S.R. 459(E) [02-08-2006]
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