Q. What costs less than £450 to design and launch and has generated £0.75m in sales?

A. The Forever 21 black beanie emblazoned with the word FOREVER available exclusively to buy on Roblox. So successful was the virtual beanie, it was shortly available in bubblegum-pink in its brick and mortar stores.

So whilst 2022 proved to be a turbulent year for the crypto sector with the collapse of FTX and the plummeting price of the “stablecoin” Terra Luna, the world’s leading fashion brands have already recognised the value of this new market and think that cryptoassets are the new black. Prada, Puma and GAP are amongst a number of brands that are continuing to integrate cryptoassets, namely non-fungible tokens (NFTs), into their product portfolios in 2023.

The growing popularity of NFTs within the fashion industry indicates that many believe cryptoassets present new opportunities for the future of fashion. However, fashion brands should also consider the risks posed by their involvement with cryptoassets. 

In the eyes of UK regulators, cryptoassets are perceived as complex and volatile products. As such, how these products are marketed has recently come under scrutiny, with the UK’s Advertising Standards Authority (the ASA) having announced that this is a ‘red alert’ priority issue for them. 

ASA guidance on advertising and marketing of cryptoassets

Whilst the majority of cryptoassets are not (yet) regulated by the Financial Conduct Authority (FCA), all unregulated cryptoassets are subject to the UK’s advertising codes and fall within the ASA’s remit.

In October 2022, guidance was published by the ASA on the advertising and marketing of cryptoassets. This guidance clarifies that NFTs, as well as cryptocurrencies and utility tokens, all fall within the definition of ‘cryptoassets’.

The guidance cautions that advertisers of NFTs should take particular care to “ensure they do not mislead consumers” and “are not socially irresponsible in the way they promote them”. The guidance clarifies that this means that NFT advertisements, for example, must:

a. clearly state that NFTs are not regulated by the FCA;
b. make clear that NFTs are not protected by financial compensation schemes;
c. not take advantage of consumers’ inexperience (in other words, advertisements relating to NFTs must be set out in a way that allows them to be understood easily by the audience being addressed);
d. not mislead consumers by omitting material information (such as the fact that NFTs are an unregulated cryptoasset that required the owner to open and maintain a cryptowallet);
e. make clear that the value of an NFT is variable and, unless guaranteed, can go down as well as up;
f. state the basis used to calculate any advertised projections or forecasts in relation to the value of the NFT; and
g. make clear that past performance or experience is not necessarily a guide for the future.

Consequences of non-compliance

Failure to comply with NFT marketing requirements can result in the ASA making an adverse ruling against a fashion brand. Negative publicity is one of the most notable consequences that flows from an adverse ruling being made, as these rulings are published on the ASA’s website.

The ASA appears to be taking a hard stance in relation to non-compliance with the relevant rules on the promotion of NFTs. This is shown by the adverse rulings published by the ASA in December 2022 against advertisers such as FC Barcelona and Crypto.com.

In response to arguments made by these advertisers that they did not believe the NFTs offered for sale, which included artists’ work and sports collectibles, to be financial in nature, the ASA made clear that “that NFTs could be used as an investment, even if they were not directly marketed as a product that could generate a return”.

The ASA further stated that “Regardless of the range of reasons a consumer might have for purchasing an NFT, they [are] in all cases a volatile, unregulated cryptoasset.”

These rulings made clear that the ASA views NFTs as investments, and should be advertised accordingly. This may come as a surprise to many fashion brands which would likely not have associated financial instruments with, for example, Burberry’s latest unicorn NFT named Minny B.

Further regulation of NFTs on the horizon?

Parliament’s Digital, Culture, Media and Sport Committee recently closed its call for evidence in relation to its inquiry into the operation, risks, and benefits of NFTs and the wider blockchain. The purpose of this inquiry is to consider whether NFT investors, especially vulnerable speculators, are put at risk by the market.

This inquiry is expected to be a precursor to further regulation being implemented in the crypto sector ahead of a Treasury review.  

Additionally, a recent amendment made to the Financial Services and Markets Bill will broaden the remit of the FCA’s powers in relation to cryptoassets if passed into law. This change could mean that cryptoassets are made subject to the rules on financial promotions and other rules for high-risk investments.

Take home points

The promotion of NFTs, and cryptoassets more generally, can be expected to become the subject of greater regulation going forwards. But before then, it is important for fashion brands advertising NFTs to:

  1. ensure that their marketing campaigns do not fall foul of any current requirements; and
  2. stay up to date with any changes in regulatory standards.

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