Author: Shreya Kunwar
Citation: “Guidelines for Advertising of Virtual Digital Assets and Linked Services”, TheAdvertising Standards Council of India, (2022) <https://ascionline.in/images/pdf/vda-guidelines-23.02.22.pdf >
The Advertising Standards Council of India (hereinafter referred to as “ASCI”) has recently published its guidelines on the advertising of Virtual Digital Assets and linked services on February 23, 2022.
The guidelines comprise a detailed list of dos and don’ts concerning advertisements involving any virtual digital assets and other services linked with the same. These guidelines mandate the presence of disclaimers in all such advertisements. The guidelines will apply to all the advertisements that are released or published on or after April 1, 2022. Additionally, these guidelines will apply to all earlier advertisements, and advertisements are not to appear in any public domain unless they comply with the guidelines, post-April 15, 2022.
Concept of Virtual Digital Asset
The definition of a Virtual Digital Asset (hereinafter referred to as “VDA”) has been imported from the newly inserted clause 47A under Section 2 of the Income Tax Act and forms a part of the Preamble to the guidelines. VDAs have been defined as “any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme, and can be transferred, stored or traded electronically”. The definition of VDAs also includes Non-Fungible Tokens (NFTs) or any other token of a similar nature.
The guidelines correctly address the fact that these VDAs are novel and currently evolving forms of investments. The guidelines highlight that there is a strong need to make known to all potential consumers and investors the risks involved in trading and investing in these novel VDAs. These guidelines place importance on how all potential traders and investors in this sphere should not be misled and are to be forewarned to mitigate any risks that they might have to face. While there are practical implications to this approach, this might also prove to deter interested parties from exploring new avenues which can perhaps yield better fruits in terms of gains and returns on their investments. Further, the use of terminologies that at the outset convey that investments and returns from investments and trading in such VDAs lack predictability and are ambiguous it is likely to demotivate interested parties from making any form of investments in such VDAs.
Unregulated and Highly Risky
The guidelines provide that the market for VDAs is still unregulated and can be very volatile especially because VDAs aren’t backed by any tangible assets. Under the guidelines, all advertisements featuring VDAs or are related to VDA products or exchanges must feature the disclaimer that VDAs are unregulated and potentially very risky, and no regulatory recourse might be available from any loss from these transactions. Additionally, these guidelines elucidate the acceptable manners in which the disclaimers should feature across different media so that they stand out and are not missed by an average consumer. The guidelines include how such disclaimers are to be inserted and various related parameters like background, font, duration, language, costs, etc. have been elaborated upon therein. Moreover, the guidelines are prohibitory with relation to certain words like ‘securities’, ‘currencies’ etc. which must not be included in such advertisements.
Further to these, all disclaimers should also meet minimum ASCI guidelines. ASCI generally requires all its advertisements to be truthful, not mislead consumers by implication, ambiguity, exaggeration, or omission, and must not be framed in a way that they abuse their trust or exploit their lack of knowledge and the guidelines are consistent with their practice.
It is crucial to note that even though VDAs are now being recognized in statutes and are becoming immensely popular across sectors, the lack of faith in them as they are backed mostly by intangible assets rather than tangible ones is detrimental to any recognition of them as a plausible channel of investment. It is commonplace that IP is still relegated to an inferior level when it comes to its usage/recognition as a form of asset/security vis-à-vis traditional forms of assets that are tangible and NFTs and all other VDAs are also falling prey to the same notion.
Curtailment of creative freedom
As these VDAs are considered highly risky, any prominent personality or celebrity that is engaged for their advertisements would also need to undertake due diligence so as not to mislead anyone that might get influenced by any such associations. Even investing in mutual funds come with a disclaimer: “mutual funds are subject to market risks” however, there is ample awareness regarding the benefits of investing in the same but simply because VDAs are new and upcoming ASCI’s take in these guidelines should not be strictly prohibitory but rather it should be precautionary and perhaps should have been a little more explanatory. On the whole, the guidelines do not provide a neutral take on VDAs rather it is very critical of VDAs and their reliability.
These guidelines are on the whole very stringent and might prove to dissuade potential investors from investing in such VDAs in the future. It is essential to adapt to the changing times and also to explore new areas and develop experience from trial and error. Invention and creation is the basis of intellectual property and the creation of novel and varied types of VDAs should not suffer or get disincentivized because of a framework that is too harsh on inventors and creators who might want to think out of the box to attract people to such novel concepts like VDAs. The guidelines might deter people from selling and buying different kinds of VDAs and in a way limit people from exploiting their intellectual properties.
Disclaimer: Views, opinions, interpretations are solely those of the author, not of the firm (ALG India Law Offices LLP) nor reflective thereof. Author submissions are not checked for plagiarism or any other aspect before being posted.
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