Circular 1/2022 of the National Securities Market Commission on Advertising of Cryptoassets Presented as Investment Objects

I. GENERAL PROVISIONS
NATIONAL SECURITIES MARKET COMMISSION
666 Circular 1/2022, of January 10, of the National Securities Market Commission, regarding advertising on cryptoassets presented as investment objects.

I
Cryptoassets have an increasingly prominent presence in the financial system, and while their development in the Spanish market presents significant opportunities, it also poses challenges in the field of investor protection, as there is currently no complete regulation that adequately responds to the risks that these assets may entail.
The revaluation of some cryptoassets has increased their attractiveness as an investment, which has been intensified by numerous advertising campaigns that may have incited retail investors to invest in these new assets without having sufficient information about their nature and the risks they involve. For this reason, the National Securities Market Commission (CNMV) and the Bank of Spain published a joint statement on February 9, 2021, which adds to another from 2018, in which they warned about the risks that this new type of asset poses to participants in the financial system and, very particularly, to small investors. The statement emphasized the complexity, volatility, and potential lack of liquidity of these investments. In this context, Royal Decree-Law 5/2021, of March 12, on extraordinary measures to support corporate solvency in response to the COVID-19 pandemic, introduced a new Article 240 bis into the Securities Market Law (LMV) to strengthen the legal framework for the protection of citizens and investors regarding the advertising of new instruments and financial assets in the digital sphere. In particular, the CNMV is granted competencies to subject the advertising of cryptoassets and other assets and instruments not regulated in the LMV and offered as an investment proposal to administrative control. At the same time, the CNMV is enabled to develop by Circular the objective and subjective scope, as well as the mechanisms and procedures of control that will be applied to such advertising activities. As this is an authorization granted directly through a norm with legal rank, on April 5 last, the CNMV launched the mandatory prior public consultation before the drafting and publication of a text for the draft Circular. This process concluded on April 16, and conclusions were drawn from it that have been taken into account in the preparation of this norm. Using the authorization granted directly to the CNMV in Article 240 bis of the LMV, this Circular is drafted with the aim of developing the norms, principles, and criteria to which advertising activity on cryptoassets must be subject, in particular delimiting the objective and subjective scope of application, specifying the advertising activity that must be subject to a prior communication regime, and fixing the tools and procedures that will be used to make the supervision of cryptoasset advertising activity effective. It is important to emphasize that this Circular does not contain any norms on the products themselves, nor on their providers or characteristics, but exclusively on the requirements that the advertising activity seeking to offer them as a possible investment must meet. As with all forms of advertising, the advertising of the products covered by this Circular must respect what is established in the General Advertising Law 34/1988, of November 11, the Unfair Competition Law 3/1991, of January 10, and other norms regulating advertising of general application. It is also
relevant to note that, even though the use of cryptoassets as a means of exchange is very limited, any advertising that promotes the acquisition of cryptoassets that fall within the objective scope of this Circular must be understood to be included in this norm, even if they could eventually be used as a means of exchange. On the other hand, for those cryptoassets that have the status of financial instruments and, therefore, are not within the scope of this Circular, Circular 2/2020, of October 28, of the National Securities Market Commission, on advertising of investment products and services, shall apply.

II
This Circular consists of seven norms, a final provision, and two annexes.
After the first and second norms, referring to object and definitions, the third norm establishes the objective scope of application of this Circular and delimits the activities considered to be advertising. On the other hand, it is determined what will not be considered advertising activity, and therefore will be excluded from the scope of the Circular, among others some professional activities ("white papers", publications on cryptoassets issued by independent analysts or commentators and not sponsored or promoted), or certain unique non-fungible assets or those that due to their characteristics are not susceptible to being the object of investment. In the fourth norm, the subjective scope of application is established. In addition to including cryptoasset service providers when they carry out advertising activities, providers of advertising services are also subject to this Circular, as well as any other natural or legal person who, either on their own initiative or through third parties, carries out an advertising activity on cryptoassets. The fifth norm collects the requirements regarding format and content that advertising campaigns must meet, as well as the information about the risks of the product being advertised that commercial communications must include, highlighting the requirement that advertising be clear, balanced, impartial, and not misleading, and in the case of those commercial communications and advertising pieces that provide information on the cost or profitability of a cryptoasset, these must contain clear, accurate, sufficient, and updated information, appropriate to their nature and complexity, the characteristics of the media used for dissemination, and the target audience to which they are addressed. All of this is developed in Annex I of this Circular. The sixth norm refers to the supervisory functions of the CNMV, distinguishing between mass campaigns directed at the general public, which will be subject to the prior communication regime detailed in the seventh norm, and the rest of advertising actions, which, like those, will be subject to the supervisory action of the CNMV, which includes procedures and deadlines to request information from obligated subjects and demand the cessation or rectification of advertising that does not comply with what is provided in this Circular, without prejudice to the application, when appropriate, of the sanctioning regime provided for in the applicable regulations. The seventh norm establishes the prior communication regime to which mass advertising campaigns must be subject. To this end, obligated subjects must submit, at least ten working days before their execution, a document of prior communication of mass advertising campaign that will follow the model that the CNMV includes for this purpose on its website, as well as the remaining documentation detailed in the aforementioned norm. For the qualification of campaigns as mass, a benchmark based on the foreseeable reach of the
campaign has been established, which may be adjusted by the CNMV based on the experience acquired in the application of this Circular. The text of the Circular also clarifies that the lack of response from the CNMV within the stated deadline of ten working days will not imply in any case that the institution considers that the advertising that has been subject to prior communication adequately complies with the norms established in this Circular. The Annexes to this Circular contain the general principles and criteria to which advertising must adhere, as well as the minimum content of information on nature and risks that must be provided to potential investors in cryptoassets. The CNMV Council, in exercise of the conferred powers, using the authorization collected in Article 240 bis of the Consolidated Text of the Securities Market Law approved by Royal Legislative Decree 4/2015, of October 23, introduced by the second final provision of Royal Decree-Law 5/2021, of March 12, on extraordinary measures to support corporate solvency in response to the COVID-19 pandemic, after the report of the CNMV Advisory Committee and hearing the Council of State, has approved this Circular, which contains the following norms:

CHAPTER I
General Provisions
Norm 1. Object.
The object of this Circular is to develop the norms, principles, and criteria to which advertising activity on cryptoassets must be subject, and in particular to delimit the objective and subjective scope of application, as well as the powers of the CNMV in matters of supervision and control of cryptoasset advertising, in accordance with what is provided in Article 240 bis of the Consolidated Text of the Securities Market Law approved by Royal Legislative Decree 4/2015, of October 23.

Norm 2. Definitions.
For the purposes of what is provided in this Circular, the following shall be understood:
a) "Advertising activity": any form of advertising, as defined in Article 2 of the General Advertising Law 34/1988, of November 11, carried out by the obligated subjects within the scope of their activity, regardless of the communication media, supports, and advertising formats used, such as television, cinema, radio, press, advertising through the internet (in any of its forms, including social networks, video channels, audio, news, blogs, search engines, specialized platforms, or websites) or mobile devices, all types of outdoor advertising, direct advertising, point-of-sale advertising, brochures, catalogs, promotional gifts, loyalty campaigns, sponsorship events, home visits, sponsored press articles, or any other form of commercial communication. b) "Advertising campaign": the set of actions aimed at publicizing a product through a single piece or a series of different advertising pieces, but grouped in time, even if not simultaneous, and related to each other, which are disseminated through various media or tools during a specific period. c) "Mass advertising campaign": advertising campaigns directed at more than 100,000 people, using any advertising medium and based on the following measurement criteria from the information offered by sources widely used in the advertising sector:
– Television: audience of programs in number of viewers.
– Radio: audience of programs in number of listeners.
– Print media (newspapers, magazines, and supplements): number of readers.
– Outdoor advertising (on urban furniture, in transport media, or on other supports): estimated number of people who would view the advertising message, or, if this estimate does not exist, the number of people registered in the census of the municipality or municipalities where the outdoor advertising is installed.
– Digital media and search engines: estimated audience and visitors.
– Social networks: the highest between the estimated number of users in the advertising campaigns and the number of followers of the accounts used.
– Sponsored videos: number of followers of the video sender. d) "Commercial communication": any form of transmission of information, verbal or visual, intended to promote, directly or indirectly, through texts, images, and/or sounds, the products covered in norm 3. e) "Cryptoasset": digital representation of a right, asset, or value that can be transferred or stored electronically, using distributed ledger technology or other similar technology. f) "Advertising piece": the specific format (jingle, television advertisement, banner, poster, podcasts, etc.) through which an advertising message is transmitted depending on the communication medium or advertising support used. g) "Advertising message": information included in a commercial communication that is directed to capture the attention of the recipient with the objective that they acquire or use a product covered in norm 3. h) "Advertising service provider": a third party that carries out a process, service, or activity for another obligated subject, or linked to it, within the scope of advertising activity according to an advertising contract, as regulated in the General Advertising Law 34/1988, of November 11, a service provision contract, or an outsourcing agreement. In any case, natural persons who are perceived as influencers or experts in social networks or audiovisual media who, through referral programs, promotions, or commissions received of any kind, disseminate promoted content pointing out the advantages of cryptoassets as an investment will be included. i) "Cryptoasset service provider": any natural or legal person whose professional or business activity consists of providing one or more services on cryptoassets to third parties in a professional manner. j) "Cryptoasset services": those professional or business activities related to cryptoassets, among the following:
– Trading of cryptoassets on platforms.
– Purchase, sale, or exchange of cryptoassets.
– Investment advice on cryptoassets.
– Management of cryptoasset portfolios.
– Any form of remuneration of cryptoassets.
– Any other services or activities whose object is the marketing of cryptoassets.

Norm 3. Objective Scope.

1. Advertising activity on cryptoassets that are the object of investment is subject to what is provided in this Circular. For these purposes, any advertising directed at investors or potential investors in Spain in which cryptoassets are offered or attention is drawn, implicitly or explicitly, to cryptoassets as an investment object will be considered advertising activity.
   In any case, it will be presumed that a cryptoasset is offered or attention is drawn to it as a possible investment object when its acquisition is promoted or any reference is made to its profitability, price, or value, current or future, that could suggest an opportunity to invest in said cryptoasset, even if they could eventually be used as a means of exchange.
   Likewise, it will be presumed in any case that an advertising activity is directed at investors in Spain when it is carried out through physical means in Spain, through communication media –including Spanish websites/domains– and all those carried out in Spanish or official languages, unless they contain measures that attest that the promoted services or products are not directed at or not accessible to investors in Spain.
2. For the purposes of this Circular, the following will not have the status of advertising activity on cryptoassets, and therefore are excluded from its scope:
   a) Advertising on cryptoassets that have the nature of financial instruments included in the annex of the Consolidated Text of the Securities Market Law, approved by Royal Legislative Decree 4/2015, of October 23. b) Advertising on cryptoassets that due to their characteristics and nature are not susceptible to being the object of investment. c) Advertising on cryptoassets whose only use is access to a digital product or service, and is accepted only by its issuer or by a limited set of commercial providers with whom the issuer maintains a contractual relationship, provided that no expectations of revaluation are offered, and the volume offered and conditions of the offer are consistent with the effective rights that the cryptoasset would offer. d) Advertising on cryptoassets that are unique and non-fungible with other cryptoassets, when those represent collectible assets, works with intellectual property, or assets whose only purpose is their use in games or competitions, so that they are not offered massively as a mere object of investment. e) Explanatory documentation of a new issuance ("white paper"). f) Corporate advertising campaigns, understood as those that contain exclusively generic information about an obligated subject or its corporate purpose, intended to make themselves known to the public, provided that:
   – No reference is made to cryptoassets or the provision of services on them.
   – Any advertising message included on the website of the obligated subject complies with the norms contained in this Circular. g) Documentation or information provided in presentations directed solely to analysts or institutional investors, carried out by the offeror, its representatives, or third parties who carry out this service on behalf of the offeror, of a new issuance of cryptoassets, with the purpose of knowing the interest of institutional investors in this issuance. h) Publications issued by financial analysts or independent commentators, not sponsored or promoted, on cryptoassets. i) Advertising on technical seminars, courses, and events on cryptoassets that in no case promote investment in them. If provided free of charge or for a symbolic price and promoted or held by the obligated subjects of this norm or parties linked to them, it will be presumed that their purpose is to promote such investment and they will be subject to the regime of this Circular.

Norm 4. Subjective Scope of Application.
This Circular will apply to the following obligated subjects:
a) Cryptoasset service providers when they carry out advertising activities on cryptoassets. b) Advertising service providers. c) Any natural or legal person, different from those indicated in the previous letters, who carries out on their own initiative or on behalf of third parties an advertising activity on cryptoassets.

CHAPTER II
Control of Advertising
Norm 5. Content and Format of the Advertising Message.

1. When designing advertising campaigns and each of the advertising pieces that integrate them, obligated subjects will comply with what is provided in Annex I of this Circular. For these purposes, they will take into account in any case the nature and complexity of the advertised product, the characteristics of the media used for dissemination, and the audience to which they are addressed.
2. All commercial communications will include information about the risks of the product they advertise, specifically:
   a) The following warning message will be included in the commercial communication, in a format and position that guarantees its relevance within the advertising piece and should not be included as secondary information or in footnotes: "Investment in cryptoassets is not regulated, may not be suitable for retail investors, and the entire invested amount may be lost." b) A link or indication to the location of additional information will be included, in accordance with point 8 of Annex I, which will include, at least, reference to the information and risks identified in Annex II, when applicable to the advertised product. The link will be identified with the following text: "It is important to read and understand the risks of this investment explained in detail at this location." When the medium used only allows an indication, reference will be made to the site where information on risks can be found and to the importance of reading that information.

CHAPTER III
Supervision of Advertising Activity
Norm 6. Supervisory Function of the CNMV. Procedure for Requesting Cessation or Rectification of Advertising Activity.

1. Advertising activity directed at investors in Spain will not require prior communication to the CNMV, except when it concerns mass advertising campaigns referred to in norm 2c) of this Circular. Nevertheless, and even if it does not concern mass advertising campaigns in the strict sense, prior communication may be required from certain obligated subjects for all their advertising campaigns, when this is considered due to the impact they could have on the target audience.
2. In the exercise of its supervisory function, the CNMV may request specific information from obligated subjects regarding campaigns or advertising pieces in order to assess compliance with the requirements established in this Circular. This type of request must be attended to by the obligated subject within a period of three working days.
3. In particular, obligated subjects must maintain a register with the following information and documentation regarding the current advertising campaign and those carried out in the last two years:
   a) General data of the campaign: start and end date, territorial scope, description of the target audience, list of communication media and advertising supports used for dissemination, and quantitative estimate of the number of people to whom they are directed, in accordance with the calculation parameters specified in norm 2c). b) Specific information on advertising pieces: a copy of all advertising pieces with different messages (including legal clarifications or warnings) or formats (radio jingle, television advertisement, banner, poster, etc.) disseminated during the campaign will be kept, in the original format or in electronic format that allows reproduction. c) Identification of advertising service providers and the advertising contracts or agreements entered into.
4. The CNMV may inform obligated subjects of the discrepancies it perceives in their advertising activity and request the cessation of the advertising or its appropriate rectification.
5. In the event of receiving a request for cessation or rectification, the obligated subject must, as soon as possible and in any case within a maximum period of two working days, either prove