Digital assets include non-fungible tokens, cryptocurrencies, metaverse and utility tokens. Currently, cryptocurrency is not regulated in India and has been treated as a virtual digital asset (VDA) for taxation purposes.
The Advertising Standards Council of India (ASCI), an industry-wide voluntary self-regulatory organisation with members from a variety of advertising-related fields, recently published a set of advertising standards for digital assets. These recommendations were intended for crypto firms who wanted to advertise their products and services through advertising in the media. In its guidelines issued on February 23, 2022, the ASCI stated that all ads for VDA products and exchanges, or featuring VDAs, must carry the following disclaimer:
“Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.”
While India’s capital market regulator, the Securities and Exchange Board of India (SEBI) has not sought a ban on cryptocurrencies, it has maintained a view that the decentralized nature of cryptocurrencies makes them harder to regulate. SEBI has further suggested that as cryptocurrencies are unregulated and carry a high level of risk, no prominent public figures like celebrities, sportsmen and others should endorse crypto assets and the advertising disclosure should also talk about the possible violation of laws.
Legal framework
Advertising Standards Council of India: The ASCI guidelines state that since cryptocurrency is a risky category, celebrities or prominent personalities who appear in advertisements must take special care to ensure that they have done their due diligence about the statements and claims made in the advertisement, so as not to mislead consumers. The celebrity must give a duly signed written confirmation to ASCI that the celebrity has undertaken due diligence for the claims and representations made in each advertisement in which the celebrity appears.
Consumer Protection Act, 2019: Section 21 of the Consumer Protection Act, 2019 addresses imposition of penalty on false or misleading advertising which is prejudicial to the interest of any consumer or is in contravention of consumer rights. The Central Consumer Protection Authority may impose a penalty on the endorser. advertiser or publisher which may extend to ₹10,00,000 for the first offence and up to ₹50,00,000 for subsequent contraventions.
Need for advertising regulations
India is witnessing fast-expanding growth in investment in crypto assets, which demonstrates the country's growing interest in the sector. This has led to cryptocurrency exchanges competing with each other to attract new customers and increase the volume of their trades.
SEBI has suggested rewording of disclaimer provided by ASCI by adding “dealings in crypto products may lead to prosecution for possible violation of Indian laws such as FEMA, BUDS Act, PMLA, etc” after stating the risk and mentioning that no legal recourse is available for fraud.
Cryptocurrency exchanges in India have recently launched campaigns with celebrities endorsing the exchanges in an effort to attract consumers. When cryptocurrencies are endorsed by celebrities - faces that the common population trust - statements promising growth upon investment in cryptocurrencies are highly misleading and may get investors to believe that their money would multiply quickly without any risk.
Currently in India, cryptocurrency is regulated but not legalised and hence there is no comprehensive set of rules that might oversee it in the same manner as traditional financial assets. Thus, the advertisements came under fire from a number of internet users and, subsequently, the ASCI.
In recent times, the flood of advertisements has ceased almost as quickly as they had begun. All major cryptocurrency exchanges have slowed down their promotion of cryptocurrencies and their use of celebrity endorsements, which have been criticised for being misleading and potentially harmful to investors. Despite the absence of legislation and a well-defined advertising policy, cryptocurrency exchanges have shifted their strategy to concentrate on raising consumers' levels of knowledge.
This recommendation by SEBI would prohibit celebrities from advertising cryptocurrencies and would make the law relating to advertising of cryptocurrencies in line with the laws that are in place for advertising mutual funds and other regulated financial assets.
Abhishek Kale is Deputy Managing Partner, Bharat Sharma is Partner, and Niyati Shroff is Associate at Naik Naik & Co.