In an effort to stem the tide of certain Bitcoin (BTC) marketing or advertising strategies used by digital asset platforms, Canadian securities regulators are mobilizing. And rather than moving directly to sanction, Canadian regulators prefer to present best practices.
A concise, clear and educational report
On September 23, the two Canadian securities regulators – the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization (IIRO) – published a guide to good advertising and marketing practices. In an educational approach, this notice aims to introduce cryptocurrency trading platforms to the application of securities legislation and advertising rules enacted by the IIRO, to their activities. The entities affected by this notice are:
- Platforms registered as brokers under the securities legislation;
- Platforms applying for registration as a broker;
- Persons who are considering establishing a trading platform as a new line of business.
In addition, this notice is a consequence of the observation made by the regulators. Some crypto platforms use advertising or marketing strategies (contests, promotions, bonuses…) that encourage investors to act without much thought. As an illustration, the report gives the example of a promotion that highlights the promise of a reward for the first 500 investors who must do a specific action within a given timeframe. Clearly, these processes are irreconcilable with informed and rational decision making.
This report is also an opportunity for the Canadian regulators to recall the legislation regarding advertising on social networks. Finally, they present examples of promotional phrases that are considered misleading. In the form of a summary table, they explain precisely why these are considered to be deceptive or misleading advertising practices.
Investor protection first and foremost
First, the main objective of this report is to protect investors. As such, the notice provides guidance to investors on how to detect deceptive advertisements. In addition, through this report, the regulators express their concerns about the practices of contests or premium offers based on the level of trading. Indeed, according to them, these practices would be likely to create impulsive and unthinking behavior among some investors.
“We are concerned that some of these strategies may inappropriately encourage investors to engage in excessively risky transactions, taking risks they would normally avoid.”
CSA and IIRO report
In addition, advertisements or marketing strategies that encourage trading in securities must meet applicable compliance obligations. These obligations are not detailed in the regulators’ notice, but must be consistent with consumer protection warnings.
In addition, exchanges are required to comply with procedures and rules applicable to the use of social networks for marketing purposes. As such, platforms must ensure the review, supervision and retention of advertising and marketing content. Also, a manager must be in charge of approving all these communications.
Finally, this report is also an opportunity to remind digital asset platforms of the role they have to play in protecting crypto investors, and by extension, the financial markets.
The way Canadian regulators are doing this is enviable. Thanks to this report, digital asset trading platforms are aware of the regime applicable to communications about their services in Canada. This notice allows exchanges to act in accordance with Canadian law.
