How are cryptoassets and their advertising regulated in Spain?

Circular on "Cryptoassets" advertising - CNMV

Last April 5, 2021, the CNMV (Spanish National Securities Market Commission) published a public consultation prior to the circular on the advertising of cryptoassets or more commonly known as cryptocurrencies.

In the introduction of the document, it is commented that the CNMV is going to have competences to control the advertising of cryptoassets or other assets and instruments presented as investment object.

In this line, this public consultation, offers the participation of the citizenship with a view to the elaboration of rules. This seems to me to be a good initiative for several reasons. On the one hand, in the face of the regulation of different complex technologies that are not fully understood, or in this case, the advertising related to them, it is always good to have different opinions from potential experts to better understand the context and application.

On the other hand, with this type of technology (cryptoassets), establishing a period of analysis/research before drafting the text of the standard is a prudent and wise decision. As we have commented, the purpose of the circular is not to regulate the technology, but to regulate the advertising of the technology presented as an investment object.

The lines on which information is sought are, respectively:

1. The problems that the initiative is intended to solve
2. The need and opportunity of its approval.
3. The objectives of the regulation.
4. Possible alternative regulatory and non-regulatory solutions.

Problems to be solved

This section of the document describes cryptoassets and the lack of a regulatory framework at European level. It also discusses the major impact they are having on innovation in financial services. The CNMV has positioned itself, through different communiqués, on the side that cryptoassets are investment instruments that involve a lot of risk. This is true, but in general, we can say that investing in something you do not understand, always involves risks, especially if you do not have a clear strategy of the investment you want to make. By strategy I mean, for example, target purchase price (market entry), target exit price (sale), long-term position or direct use.

The problems discussed in the circular are, among others:

• Project complexity.
• Price volatility.
• Potential lack of liquidity.
• Loss of investment due to cyber-attacks (hacking).
• Loss of investment due to custody failures.

The main problem we are trying to solve is advertising without objective information about the product and its risks.

On this point I totally agree with CNMV, it is a problem and the retail investor/customer must be very cautious and educated before buying or investing in cryptoassets. It is very important to cut through the hype noise and understand the fundamental value of the project in question.

Objectives

The CNMV frames them under the following phrase: "to develop the rules, principles and criteria to which the advertising activity on crypto-assets must be subject".

But it does not propose any rules or an initial recommendation, it is basically a completely open consultation to gather information. What it does do is to ask different questions to receive information:

1. Do you consider the objective and subjective scope of application to be appropriate?what elements should be included and excluded?
2. Do you consider it appropriate to require prior authorization only for certain mass campaigns? In which cases do you consider that such differentiation should be applied?
3. In order to meet the objectives of clarity and content, which elements do you consider most relevant?
4. In relation to the risks, what elements do you consider should be included in the mandatory warning text? Do you agree that this text should be included in a mandatory and standardized way, with a format and position that guarantees its relevance within the advertising piece? If not, please justify.
5. Do you agree with the general action approach for the supervisory regime, as well as the need to have the capacity to act with the necessary agility? What elements should be taken into account to facilitate the CNMV's supervisory action?

Conlusion

The CNMV public consultation seems to me a good initiative. I think it is good that there is a regulation on the advertising of investment services, not only cryptoassets, especially to try to encourage investors to educate themselves or, at least, to understand the risks involved in investing in a particular financial asset. I also think that CNMV is doing a prudent thing by gathering information from end users or experts in order to better understand the context and adapt the rule. We will see what comes out of this consultation in terms of advertising obligations.

I think the key is to understand the intrinsic value of these cryptoassets; there are some that have a lot of application, good technical quality and a large development community behind them (e.g. Bitcoin and Ethereum). However, there are others (the majority) that are simple copies with no differential value. As they say, it is important to distinguish the wheat from the chaff. In any case, because of the youth of the market, in different assets, there are very aggressive price volatilities. Every potential investor in cryptos should be aware of that, regardless of the quality of the project.

For us, cryptocurrencies are a technical innovation that will radically change the financial world as we know it. We believe that cryptos will "democratize" the financial system, eliminating entry barriers and making the exchange of digital value, in this case, money, global and without intermediaries, through the Internet.

Both in terms of investment and analysis of technical projects, we always think that the best thing to do is to have a technologist nearby to help you understand what you are investing in. At Exponentia we have been in the world of development and cryptos for a few years, so if you need help, contact us without obligation.