Introduction

Before the introduction of SEC's rules on digital assets, the crypto industry was largely unregulated. This created a perfect environment for bad actors who were only concerned with making quick gains, often at the expense of others, thrive. They actively engaged in pump-and-dump schemes or promoted dubious crypto projects without any regard for their legitimacy.

However, this will no longer be the case, the SEC’s new rule “Digital asset issuance, offering platforms, exchanges and custody” provides clear guidelines on the advertisement, marketing and promotion of virtual assets. This rules, tilt the landscape of the industry from that of regulatory laxity to a regulated one, thus marking the end of an exploitative era, and the beginning of an era focused on protecting investors. 

The Rules on digital asset advertisement, marketing and promotion. 

These rules specifically address Virtual Asset Service Providers (VASPs) and Financial influencers (finfluencers) because the are the channel through which investors get to know about digital asset offerings. The rule places regulatory burden on these two, to ensure that whatever digital offering they advertise to the public is legitimate. 

Who then is a VASP and a Finfluencer

Under the rules a "VASP means any person (individual or corporate) who is registered to perform any function related to virtual assets services." This basically means any business/ platform that offers services like exchange, transfering, token issuance, custodianship, and/or advisory and portfolio management of crypto currencies is a VASP.

A finfluencer on the other hand, is any person who promotes any digital asset offering or share any investment opportunity through social media.You don't have to be a KOL, Shiller or Alpha caller to be regarded as a finfluencer. The mere fact you promote any digital asset offering is enough to bring you under the regulatory purview of SEC. 

What then are the SEC's rules? 

Rules Applicable to VASP

The rules impose strict conditions a vasp must meet before promoting any digital asset offering. They include;

Licensing and approval requirements:

A VASP must first be licensed and obtain approval from the Commission before engaging in any promotion, advertisement, or marketing of a digital asset offering. This has two key effect; it ensures only regulated entities can advertise virtual asset offerings; and it's reinforces the integrity of a project giving investors a greater confidence in the the authenticity of the virtual asset project. 

Transparent advertising:

A VASP must ensure that any testimonial or endorsement used in advertisement comes from an individual who has actually invested or used the product or service, and it should also be indicated if the endorser was paid. 

The rules also requires that all advertisements be clear, accurate, and written in simple language to avoid misleading investors.

In accordance with that, an advertisement is considered misleading if it includes:

• Statements that exaggerate asset performance or omit necessary explanations and disclaimers.
• Misrepresentations of past performance, or implications that past gains will automatically repeat in the future.
• Ambiguous or exaggerated slogans and terms such as “invest and secure your future,” “top offer,” “superior offer,” “brighter future,” “double your earnings now,” etc.
• Statements that promise or guarantee rapid returns or increased profits.

These requirements sets a standard for advertising virtual asset. Which is necessary because many Nigerian investors are young and inexperienced, therefore they can easily be swayed by overzealous ROI.

Restrictions on using celebrities:

VASP are prohibited from using celebrities, fictional characters, or finfluencers in advertisements. This is due to the prevalence of pump-and-dump schemes being associated with celebrity endorsements, a classic example is Kim Kardashian endorsement of EthereumMax which turned out to be a huge scam, which cost investors their funds. Another reason is the obvious fact that they lack the expertise to appropriately communicate the pros and cons of a digital offering to investors.

However, if a VASP still wishes to engage a social media influencer it must first obtain a “no-objection authorization" from the Commission.

Rules applicable to Finfluencers

To ensure investors are protected, finfluencers are required to:

• Verify that both the VASP, product, or service they intend to promote is licensed and approved by the Commission
• To disclose when they are being paid to promote a project. Failure to do so will attract a penalty of 10million naira imprisoment for 3 years or both. 

Conclusion

It is now clear that business will no longer continue as usual. The industry initially known for its lack of regulatory oversight is now governed by established rules and anyone who wants to remain on the right side of the law must comply fully with these regulation.