As part of its efforts to protect citizens from unethical and misleading advertisements, the South African government has added new guidelines to its Advertising Code. The new code provides guidelines for cryptocurrency product promotions to prevent crypto service providers from presenting sugar-coated investment schemes to consumers.
The South African Advertising Regulatory Board (ARB) released a review of Section 111 of its Code of Advertising Practice on Monday, January 23. This rule comes when consumer protection has become the top concern of global regulatory agencies and governments worldwide.
Details of New Advert Code
The new guidelines mandate all crypto products and service providers in South Africa abide by the advertising codes. It stated that crypto advertisements must expressly and clearly state that investments may lead to loss of capital as the values are volatile and can go up and down.
It further states that crypto adverts must not leave out warnings regarding potential losses related to investments. Every crypto product and service advertisement must be well-detailed in a manner that the target audience understands.
Aside from providing details about the offer, the ad must also include balanced messages about returns, features, benefits, and risks of the crypto offering. The regulatory board also noted that returns, forecasts, or projects must include substantial facts with the methods for calculating profits and rewards. It should also state conditions that apply to the touted returns.
The ARB also mentioned that promises for future returns must not base upon information regarding past performances. In addition, advertisers must not present information in a way which favors mainly the product or service to the target audience.
Social media influencers and brand ambassadors were not left out. The board is aware of inputs from influencers and brand ambassadors who present false information on their social media accounts to persuade consumers. The ARB stated in the new code that influencers must comply with some guidelines and advertising standards. These standards include that influencers and brand ambassadors must share factual information. The advertising code prohibits them from offering crypto trading or investment advice and making promises of benefits or returns.
South African Crypto Industry Due For A Clean-Up, Says LUO GM
Speaking on the updated guidelines, the GM for Africa operations at crypto exchange Luno, Marius Reitz, said his crypto exchange led the reform with ARB. He told reporters that Luno, with other top industry players, proposed the advertising code reform to the ARM.
According to the executive, the South African crypto industry is looking to adopt a self-regulatory approach to create awareness regarding risks associated with crypto investments among consumers. Reitz said scammers take advantage of unsuspecting investors in the country, leading to an increased need for a clean-up.
Reitz added that it is understandable that media and advertising platforms are seeking advertisers to make profits. However, they are concerned that the platforms are not conducting extensive due diligence before accepting adverts.
Still, on the new code, Gail Schimmel, CEO of ARB, said the project would provide better protections for South African consumers who might be susceptible to scams. She praised the local crypto firms for their willingness to pursue self-regulation without expecting the government to force them.
Several scam crypto projects have exploited investors in recent years. South Africa has recorded some such cases. For example, Mirror Trading International, a crypto investment platform, made headlines in 2020 and 2021 after its CEO, John Steynberg made away with millions of investors' funds. Reports stated that Steynberg was in sole control of wallets bearing around 23,000 BTC belonging to thousands of investors.
Africrypt, another South African investment scheme, turned sour on customers in 2021. Founding partners of Africrypti, Raees and Ameer Cajee, ghosted the court after claiming that an account hijack led to the loss of $200 million worth of cryptocurrency from the scheme.
Role of Influencers On Crypto Scam Promotions
Influencers and so-called brand ambassadors have also played a part in the problem affecting the industry. Some use their social media influence to promote rug-pull projects and convince their followers to invest. One notable example is the Hollywood star Kim Kardashian that advertised a fraudulent crypto project called EthereumMax (EMAX).
After the EMAX project succeeded in pump-dumping on investors, its promoters, Kim Kardashian and Floyd Mayweather Jr., faced a class action lawsuit. A few months back, the US Securities and Exchange Commission raised legal actions against the celebrity for promoting EMAX. The regulators charged Kim Kardashian a $1.26 million fine for promoting a scam project that caused losses for investors.
2023 To See Stringent Crypto Regulatory Standards
Similar issues with influencers resulted in strict guidelines from regulators on investment schemes promotions, including digital assets. Global regulators are also exploring ways to raise the standards for international crypto regulation to avoid scams, cyber-attacks, and money laundering involving cryptocurrencies.
Blockchain analytics and crypto compliance solutions firm, Elliptic shared a report on the regulatory outlook for 2023. According to Elliptic’s report, crypto policy and regulation will expand to new digital frontiers in 2023.
The report stated that the EU approved the Markets in Crypto Assets (MiCA) regulation bill. The US Congress is also debating bi-partisan legislative proposals to govern crypto markets. Regulators from Singapore, the UK, and other countries have set rules to protect consumers from fraud and misleading advertising in crypto products.