New rulings published by the Advertising Standards Authority provide welcome protection for consumers in cask investments. But there is still a way to go.
The U.K.’s independent advertising regulator concluded that previous ads were “misleading and socially irresponsible” and didn’t comply with the rules already set out for financial products. Firms have until January 2024 to comply with the new guidance.
The rulings bring promotional material for the sale of casks in line with other investment opportunities. They provide more transparency for those considering whisky casks as an asset; however, there are still significant areas that are not explicitly covered in the guidance. These omissions mean there are still risk areas that consumers need to be aware of.
A Three-Pronged Approach To Improve Cask Investment Ads
Following the investigation and ruling against the advertising practices of a number of cask investment companies earlier in 2023, the ASA have now issued official rulings on what advertisements for cask investments should make clear, and what they explicitly cannot contain. The rulings cover both paid adverts and general online content (like websites). In order to prevent the most common malpractices by cask companies, the ASA provides guidance over three categories: qualifications, endorsements and social responsibility. But what does that mean?
The guidance on qualifications is the longest of the three sections, but the essence is about how companies “qualify” any information given, whether that be return rates or how casks mature. The qualifications section ensures consumers receive the information necessary to make an informed decision, in an unbiased way, and that risks are clear.
Claims of rates of returns that cannot be proven were one of the big callouts of the investigation into Blackford Casks Ltd., so it’s no surprise to see rates of returns explicitly mentioned. Cask companies must also provide a basic level of information about the nature of maturing whisky in casks, such as the natural evaporation, and that casks must be bottled when the whisky inside is above 40% ABV. Whisky investment firms must also make clear that whisky is an unregulated market.
Endorsements is the second category, and this section stems from a company using the World Whisky Award logo in its advertisements when it hadn’t won an award. As well as banning the use of misleading logos, the guidance specifically mentions “featured in” sections, in which some investment companies have been including paid-for advertorial. The rulings are clear that companies can only include endorsements of this type when a publication has “chosen to run editorial features about your company.”
The final category is social responsibility, and this section is short but to the point; companies should not use misleading language to give an “irresponsible impression” of what can be gained from an investment into casks. The section specifically covers language for rates of return and potential for retirement. It also includes the flexibility to apply to other misleading information that isn’t explicitly covered. A good example would be how cask sizes are sometimes presented alongside a number of bottles, which could lead a consumer to make an incorrect calculation of a per-bottle price, and make a cask appear better value than it actually is.
How The New ASA Guidance Protects Potential Cask Investors
The new rulings bring the advertisements for cask investments in line with how other investments must be presented, although whisky remains otherwise unregulated.
The three areas of the new guidance ensure that potential purchasers of casks must be provided with the basic foundations of knowledge to make an informed choice. What’s more, any data and/or information provided must not be misleading or irresponsible in how it is presented, or be deceptive via omission.
The rulings mean that non-compliant adverts should be taken down more quickly, which will help protect consumers and reduce the potential for scams. Companies will have to be more considerate about how they present data and provide comprehensive background information, which should help to improve the balance of information between sellers and buyers. This, in turn, will be positive for the industry as a whole.
These new rulings are a crucial first step in preventing scams and mis-selling to vulnerable consumers. The new guidance is also poignant for the cask investment industry, which has made headlines too often recently for the wrong reasons. But many in the industry agree that it is only the start of the work that needs to be done to make cask investment safe.
Blair Bowman has been outspoken on the topic of cask investment for some time. On an email discussing the rulings he said, “The ASA’s enforcement notice is welcome news as it shows that the regulator is taking the issue of whisky cask investment scams seriously and is prepared to take action against those who are preying on unsuspecting investors. However, there is still a lot of work to be done to clean up this space, which is full of charlatans.”
What’ s more, one of the biggest issues with cask investments is not covered by the watchdog’s latest rulings.
Ownership Structure Remains An Undisclosed Risk For Cask Buyers
Ownership remains a significant area of concern and is not specifically addressed within the new guidance.
Many cask investment companies use “certificates” and contracts that give a “right to” a cask, rather than outright ownership used in the wider cask industry. The limitations to owning a cask this way include lack of autonomy over your asset, limitations on who you can sell with and the risks of owning a long term investment through an unregulated company.
“Don’t be fooled by a fancy gold foil-embossed ‘certificate of ownership.’ It may not be enough to protect your investment,” says Bowman. “If the company you bought the cask from goes bankrupt, you could struggle to prove ownership with just that fancy looking certificate. The company may not have notified the warehouse of your purchase, or they may have left the title of the cask in their name on their warehouse account.”
While some companies claim to use certificates as legitimate setups to allow private individuals to own casks where they can’t take full ownership, in some instances this structure has led to consumers not getting what they thought they’d purchased, or the casks simply not existing.
The nuances and risks of this ownership structure are rarely communicated clearly to the purchasers. At a stretch, this could be covered under both the qualifications and social responsibility sections, but the lack of explicit ruling on how ownership should be communicated leaves a big gap in consumer protection and industry transparency.
At the moment, the only official guidance on ownership comes from the Scotch Whisky Association, who make clear that you should “check with the warehouse keeper what documents they require and ensure that the seller can deliver them to you.”
Overall, the new protection is welcome, but it is just the first step in making private cask investment a safer place for private individuals. Whisky remains an unregulated market, and while casks can be an interesting and engaging asset, potential purchasers still need to take significant steps to educate themselves on the nature of the whisky market, and the nuances of casks in particular, before committing to a purchase.