Facebook’s New Rules For Crypto-Related Ads Aim To Weed Out The Bad Apples

When it relaxed its ban on cryptocurrency-related ads a few weeks ago, Facebook also threw in some new rules. It said that crypto companies must show “licenses they have obtained, whether they are traded on a public stock exchange, and other relevant public background on their business” to be able to run ads about their products and services on the social network.

LIONBIT

Facebook, however, continues to ban ads specifically for initial coin offerings (ICOs) or binary options. Binary options involve betting on the price of a currency to go up or down against another currency after a certain amount of time. Such trades are illegal in some countries because they’re susceptible to price manipulations.

Facebook said it previously banned all crypto-related ads to avoid promoting financial products and services frequently associated with “misleading or deceptive” practices.

John DeCleene, associate fund manager at investment firm OCIM, says the new relaxed rules will help promote the blockchain industry, while weeding out bad actors.

“Allowing selected cryptocurrencies to advertise will slowly introduce high-quality crypto projects to the general public, which will in turn change people’s mindset when it comes to this asset,” he says. Such projects have solid use cases, track record, and development teams, he notes.

The public has been spooked by news of scams and exchange hacks. From January to July this year, a total of US$731 million was stolen from crypto exchanges, with two of the biggest hacks coming from Asia. Japan’s Coincheck and South Korea’s Coinrail lost US$500 million and US$40 million, respectively, in crypto heists.

Only legit firms can apply

Explaining how the Facebook ads application process works, Violet Lim, co-founder and CEO of blockchain-based dating app Viola.Ai, says the social network will first access the advertiser’s account to see if it’s legitimate. It will then check for licenses and do a background check on the company, before approving any ads about its crypto projects.

“This raises the standards for the advertisements as well as the crypto industry as a whole,” she claims.

“I believe well-established firms will benefit most,” DeCleene adds.

According to Huobi Research’s estimates, as of 2017, 20 million users go online to avail of blockchain services. They make up about 0.5 percent of total internet users worldwide, and are a very small community compared to Facebook’s more than 2 billion users.

Facebook ads give blockchain firms the opportunity to tap into the social network’s massive user base who may not even know about the technology.

TIP

Not everyone’s looking to advertise on Facebook

Cross-border payments firm Rate does not intend to post ads on Facebook to grab more customers. Instead, it’s using the platform to keep its existing users engaged and recruit more staff, including blockchain engineers and community managers, says its co-founder and CEO Jake Goh.

Goh points out that some crypto companies already have an active presence on other social media platforms such as Twitter, Telegram, blogging portal Medium, and discussion forum Reddit. This may mean that Facebook isn’t as important an advertising channel for them.

Self-serving?

Celine Xiao, a blockchain analyst for Huobi Research, speculates that “the initial ban [might have been] only temporary while Facebook sought to build up an understanding of the blockchain industry.” After all, the US company has started exploring how to leverage the tech across its platform.

As one of the world’s tech titans, Facebook “cannot turn a blind eye to blockchain,” DeCleene points out. “Crypto and blockchain frequently go hand-in-hand, so if they decide to ban crypto adverts, then they are setting themselves up to fall behind the times as more and more companies begin to embrace blockchain.”

The tech firm needs to understand how blockchain works before they can manage the advertising aspect of it “more meaningfully,” Xiao adds.

Given the growth in the cryptocurrency market, allowing more crypto ads will also help Facebook boost its advertising revenue, she suggests.

ICO ads remain barred

But Facebook still prohibits advertising ICOs as this space is largely unregulated.

Banning ICO ads was a sound decision, observes Xiao. “As the market is not sufficiently mature, such controlled measures appear reasonable. A deep technical knowledge [from interested participants] is required to evaluate a particular project conducting the ICO.”

Moreover, because Facebook generally caters to mainstream consumers, the experts believe that it has a responsibility to educate them on cryptocurrencies.

“Many consumers are still rather ignorant. They don’t know the difference between Bitcoin and blockchain, and many still think Bitcoin is a good indicator for how the overall crypto market is heading. Since so many people look toward Facebook as a pioneer with regards to technology, the responsibility [for consumer education] falls more on Facebook,” says DeCleene.

The US firm should lay out clearly the terms and conditions on what startups can post and make sure that they strictly adhere to these rules, he adds.

It seems that cryptocurrency startups understand why ICO ads are still barred on Facebook.

“We think ICO-related ads should continue to be banned or receive more scrutiny – many of them are slightly misleading,” Goh says.

“We respect Facebook’s decision. It is to minimize any potential scamming attempts and to protect its users,” says Lim.

But she also thinks that cryptocurrency is here to stay, and it’s only a matter of time before it becomes a norm. “Although crypto is still at its infancy and a lot more work needs to be done, it definitely is a growing industry with a lot of potential to do good.”


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Crypto Startups Don’t Need Sandboxes, They Need Greenhouses

John Collins, is an affiliate at the Berkman Klein Center at Harvard University and former head of policy for crypto exchange Coinbase.

I’ve written before about how I believe regulatory “sandboxes” for financial services innovation serve a useful function and, in absence of federal action in the U.S., states should establish them.

Since that time Arizona passed legislation to establish a sandbox, other states are trying, and there are continuing and active discussions in my home state of Delaware around how to support financial services innovation.

During my testimony at a Maryland Financial Consumer Protection Commission hearing on cryptocurrency, I took the opportunity to give a plug for regulatory “sandboxes” because I think crypto and blockchain projects are excellent candidates for such programs.



With that in mind, I read with great interest a recent speech by Maria Vullo, the Superintendent of the New York Department of Financial Services.

She touched on a number of different topics across the financial services landscape (including the state’s BitLicense regulations) and the speech is largely a rebuke of the current administration, its policies, and its overall regulatory worldview. It’s an excellent and provocative speech and I urge everyone to read it.

However, one passage, in particular, caught my attention:
“There are those who argue that the mere utilization of financial technology alone somehow grants them an exemption from the rules that banks and other financial institutions follow to manage risk and protect consumers. I have been highly vocal on myriad fronts in my opposition to this view, which would permit any company that calls itself a fintech to engage in a form of regulatory arbitrage, either with no regulator or in a so-called sandbox.”

She followed with this memorable line:
“A sandbox is where toddlers play. Adults play by rules and if you engage in banking activities, that means you are responsibly regulated in order to protect the customers. Period.”


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I don’t disagree with the overall sentiment of Vullo’s statement (and should note than Jan Owen, head of the California Department of Business Oversight made a similar remark a few weeks later): the financial services industry is highly regulated for a reason, and the responsibilities of a financial services company should be higher than that of a photo-sharing app. (I stole this line from Circle co-founder Jeremy Allaire.)
Where I disagree with Vullo is in the representation of so-called “sandboxes” as a no-man’s land of unregulated financial services offerings and the companies who want to discuss new ways of testing financial technologies as “toddlers.”
No one serious is arguing for that type of construct — and if they are, they should stop. And while many of these companies have too many people riding scooters, they aren’t toddlers.

Her description of “sandboxes” sounds more like quicksand. It’s dangerous. In my view, it doesn’t accurately reflect what market participants need or desire — and it doesn’t accurately represent what governments are implementing around the world.

I’ve come to the conclusion that the term “sandboxes” is a bad one. It reinforces the visual that Vullo portrays in her speech and it portends a lack of seriousness that is needed when discussing about financial services.
I have stolen the term “Greenhouse” from Rob Morgan and my former colleagues at the American Bankers Association. I think it more accurately represents what is being attempted. Namely, it’s a place that financial technology solutions can be safely seeded, fed, and controlled.

Those that grow to potential are moved to the real world. Those that fail are filled in with new seeds. And the weeds are cut down.
Fundamentally, these greenhouses aim to relieve the tension between innovation and technology. As technology has (for the most part) finished its disruption of unregulated industries, it has now moved on to the regulated ones.

Testing is inherently necessary for the development of good technology. Disallowing it inhibits innovation, increases the chance of poor technology, and pushes innovators into gray areas that provide little or no transparency for regulators and makes fulfilling their mandate more difficult.
Rather than a “trust but verify” model whereby the regulator accepts an application, allows the business to operate, and checks compliance after operations begin, a greenhouse allows for the solution to be examined in real time.

A few months ago, the UK Financial Conduct Authority published a report detailing its “lessons learned” from experiences over the past several years.

There are certainly problems in the implementation and execution of such programs: Jackson Mueller of the Milken Institute has opined on some of these issues, which include: picking winners and losers, maintaining fairness, finding solutions that actually need such a construct in order to do testing, etc.

Primarily, however, it appears the exercise promotes a two-way conversation between regulators and industry, forces government to make guidance easier to find and understand, and helps companies lower the cost of compliance or quickly pivot away from solutions that might not work, avoiding the waste of time and precious investment dollars.
These are all things we should be promoting. No matter what we call it.


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Facebook reverses its crypto ad ban!!

As there’s clearly too much ad revenue potential to ignore, Facebook today announced it’s reversing its cryptocurrency ad ban effective immediately. The decision comes with a few caveats, however. The company says it will allow ads and related content from “pre-approved advisers,” but will still not allow ads promoting binary options and initial coin offerings.



Facebook had first enacted the ban in January, saying at the time that too many companies in this space were “not currently operating in good faith.”

While it admitted that banning all crypto advertising was a broad change, the company said that its new policy would “improve the integrity and security of our ads, and to make it harder for scammers to profit from a presence on Facebook.”

But it had also said the policy would be revisited over time, as its ability to protect deceptive ads improved.

Fast forward six months, and apparently Facebook is ready for the crypto ad onslaught yet again.


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This time around, it’s making advertisers go through an application process to determine their eligibility. Facebook will ask advertisers to include on their applications details like what licenses they’ve obtained, whether they’re a publicly traded company, and other relevant background information regarding their business.

How thoroughly this information is fact-checked by Facebook staff remains unclear.
The company reminded users in the same announcement that they should continue to flag ad content that violates its guidelines. In other words, expect some bad ads to get through.
Facebook explains its new requirements will keep some crypto advertisers from being able to hawk their businesses on the social network, but adds that its policy in this area continues to be a work in progress.

“…We’ll listen to feedback, look at how well this policy works and continue to study this technology so that, if necessary, we can revise it over time,” says Rob Leathern, Product Management Director, in Facebook’s announcement.

Facebook’s original decision to ban crypto ads was followed by Google in March, when the company cited the “unregulated” and “speculative” nature of many of the advertised products. Its new policy begin this month. Twitter and Snap also have some policies around crypto ads, with Twitter only showing ads for exchanges and wallets provided by publicly traded companies and Snap allowing crypto ads but banning those for ICOs.

The crypto industry is rife with scams, so it makes sense that these major platforms would need some rules around what’s allowed. According to the FTC, consumers lost $532 million to cryptocurrency-related scams in the first two months of 2018, Coindesk reported on Monday. And an agency official warned that consumers will lose more than $3 billion by the end of the year.

Facebook says the full crypto ad ban is lifted today for approved advertisers.



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