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28 Jan 2022 FinTech

On March 13, 2021, the National Gazette published the government approved emergency reform to the Spanish Stock Market Law (Royal Decree 4/2015, the “LMV”). The incorporation of article 240 bis to the LMV was a direct backlash to the aggressive advertisement benefiting from, as well as fostering, the rising frenzy on cryptocurrency. The article empowered the CNMV to outline the prerequisites any publicity on cryptocurrency has to comply with before getting out to the public and, also, to remove from the public’s sight any advertisement they deem as fraudulent or misleading.
The CNMV issued a proposal for such outline on June 14th, 2021, and yesterday, 8 months later, the “Circular 1/2022, of January 10, of the National Securities Market Commission (CNMV), regarding advertising of crypto-assets presented as investment objects” was finally published.
This Circular contains seven norms, two final dispositions and two annexes, and will enter into force one month after its publication in the Spanish National Gazette (“B.O.E.”), which would be on February 17th 2022.
Hereunder we will make a high-level review of the Circular’s content by highlighting the most relevant information that cryptocurrency service providers are to take into account:

  1. Purpose

The purpose of the Circular is to develop the norms, principles and criteria that are to be complied with in relation to advertising activities on cryptocurrency, as well as to outline the objective and subjective scope of application and determine the powers of the CNMV as supervisor of advertising activity regarding crypto assets.

  1. Definitions

A few definitions were incorporated in the Circular, such as “Crypto assets”, “Crypto asset Service Providers”, “Service on Crypto assets”, etc. But according to our criteria, the following are the most determining for practice:

  • “Advertising Campaign”: A set of actions with the objective to advertise a product through a single channel or a series of different advertising channels, which are gathered in time, even if they are not simultaneous or related to each other, and disseminated through various media outlets or tools within a specific period of time.
  • “Massive advertising campaign”: Advertising Campaigns directed towards more than 100.000 people with the aid of any advertising medium and based on the following measurement criteria provided by sources widely used in the advertising industry: 
  • : the audience for programs in number of viewers.
  • : audience for the programs in number of listeners.

Print media: number of readers.
Outdoor advertising: estimated number of people who would view the advertising message or, in the absence of such estimate, the number of people recorded in the census of the municipality or municipalities in which the outdoor advertising is installed.
Digital media and search engines: estimated audience and visitors.
Social networks: the highest between the estimated number of users in advertising campaigns and the number of followers of the accounts used.
Sponsored videos: number of followers of the video broadcaster.

  • “Crypto asset”: Digital representation of an asset or right that can be electronically transferred or stored by using distributing ledger technologies or other similar ones.
  1. Scope

The following will fall under the scope of the Circular:

  1. All advertisement on crypto assets directed towards investors or potential investors resident in Spain.

“Directed towards residents in Spain” = When the advertisement is carried through Spanish media outlets or expressed in Spanish or other official languages (unless it contains an express disclaimer stating the product is not offered to residents in Spain).
Also, it will be presumed that a crypto-asset is offered when its acquisition is promoted or any reference to its profitability, price or value, current or future, is made in a way that could suggest an opportunity to invest in such crypto-asset, even though they may eventually be used as a means of exchange.

  1. Activities excluded from the Circular’s scope:
  1. Advertisement on crypto assets which are categorized as Financial Instruments according to the Stock Market Law. 
  1. Advertisement on crypto assets that gather the characteristics of an asset not susceptible to be invested in.
  1. Advertisement on crypto assets with the only function is to enable digital access to a specific product or service. 
  1. Advertisement on Non-Fungible Tokens (NFTs).
  1. Advertisement on the company that provides the service, as long as no reference to the crypto asset or service provided are made.  
  1. White papers.
  1. Information or documentation exclusively targeted via presentations, by the offeror, to analysts or institutional investors.
  1. Publications broadcasted by independent analysts which are neither sponsored nor promoted.
  1. Advertising of technical seminars, courses and conferences on crypto-assets that in no case promote their investment. Nonetheless, if they are provided free of charge (or for a symbolic price) and are promoted or held by obligated parties to the Circular (or parties related to them), it will be presumed the intention is to promote an investment and thus shall be subject to the dispositions set out in the Circular.
  1. Subjective Scope

Individuals or entities that fall under the scope of the Circular:

  1. Crypto asset service providers whenever they advertise crypto assets.
  1. Advertisement service providers. 
  1. Any individual or entity, different from the above, carrying out on its own, or through third parties, an advertisement campaign related to cryptocurrencies (which includes youtubers, influencers in social media networks such as Instagram, Facebook and Twitter, etc.) 
  1. Format & Content of the Advertisement

As a general note, all advertisement campaigns shall be tied to general principles stated in the Annex 1 of the Circular, such as being clear, impartial and not misleading. Nonetheless, all advertisement campaigns will also have to include information regarding the risks associated to buying the product by:

  1. Including a disclaimer with the following statement: “crypto assets are not regulated; they may not be adequate for retail investors and the whole investment may be lost”.

If the inclusion of this information is problematic due to the lack of space or time, then by:

  1. Including a link that will direct the investor to all relevant information associated with the investment, stating: “It is important to read and understand the risks of this investment which are explained in detail in the following link”. 
  1. CNMV Supervising Role 

One of the most relevant developments within this Circular is that the rule establishes that advertisement campaigns targeted towards Spanish residents will only be subject to prior notice to the CNMV when they are Mass Campaigns (directed to more than 100.000 people). All other campaigns will be exempt of this requirement. Nonetheless, the CNMV might oblige certain Crypto asset Service Providers to always comply with the prior notice if they deem the impact of their campaigns too high for the public. 
Also, the CNMV might require from obliged subjects’ specific information on the advertising campaigns in order to evaluate compliance with the Circular. Obliged subjects will have a period of 3 labor days to provide the required information.
Particularly, obliged subjects must keep a record with the following information and documentation on the current advertising campaign, as well as those carried out in the previous two years:

  1. General information on the campaign (such as start and closing dates, territorial scope, description of the targeted audience, etc.).
  2. Specific information on the advertising pieces (both on the included message of the campaign and the used medium).
  3. Identification of advertising service providers and the advertising contracts or agreements entered into.

Additionally, the CNMV can also require the amendment or cessation of the advertisement they consider misleading or fraudulent in regards to Annex 1. In such case, the required party will have two working days to respond.

  1. Prior Notice

In the event of a massive campaign, a prior notice of 10 working days will have to be given to the CNMV. This notice will have to contain all relevant details of the campaign, such as dates, territory, description, etc. Nonetheless, the CNMV has not yet published official form of such notice. 

  1. Sanction

If the prior notice required by the CNMV is not complied with, the sanctions established in the Stock Market Law will be applied according to article 292 Spanish Stock Law. In this respect, since the violation of these rules would be considered a serious infringement according to article 303 of Spanish Stock Market Law, fines could be set at up to the greater of three times the gross profit obtained through advertising, 2% of the offending entity's own resources, 2% of the total funds used for the infringement or up to 300,000 euros.

  1. ANNEX 1: Principles and Criteria

Among others, the principles and criteria (which we believe to be the most relevant) are the following:

  1. Cryptoasset ads must be, clear, balanced, impartial and no misleading. Information in the ads must be coherent and non-contradictory. 
  1. The ads referring to past profitability, or to the cost of a cryptocurrency, must contain clear, exact, enough, and actualized information. In this sense, the ads should try to avoid making references to past high profitability or creating disproportionate expectations.
  1. The ads must be designed in a way that they do not omit or hide relevant information useful for the decision-making of potential investors. Also, all relevant information should be reproduced for a period adequate for its comprehension. 
  1.    When the media or the advertising format used imposes space or time limitations (in such a way that it is not possible to include all relevant information on the crypto-asset within the original advertising piece) alternative sources of information shall be referred to.   
  1. If the advertisement makes reference to any specific tax treatment, it must make clarifications about the characteristics of such treatment.
  2. In audio or video format, the duration of the disclaimer must have a sufficient duration for its complete and clear transmission. When the audio is longer than 60 seconds, the disclaimer must be included at the beginning and at the end.
  1. The type of font used in the ad must be easily understandable.
  1. In audiovisual, radio or any other media in which an advertising message is broadcasted, the relevant information must be reproduced for a sufficient time to allow its adequate perception.
  1. Any mention of limitations or exclusions of the obliged subjects’ liability shall be avoided in the advertising content.
  1. The advertised crypto
  1. Assets shall be clearly distinguished, and the use of words or expressions that may create doubts surrounding their nature and characteristics or about the risks associated with them shall be avoided.
  1. The inclusion of superlative or diminutive adjectives, or any expressions indicating advantages of the crypto-asset, must be based on objective and verifiable factors or data that allow to prove it.
  1. When an offer has a specific term, this shall be expressly stated. 
  1. ANNEX 2: Risky Investments. 

It outlines general principles and common knowledge of the cryptoasset market, as well as general indicators of risk in regards to investing in these assets.