Consumer terms in the crypto market – the Swedish Consumer Agency’s review and conclusions of cryptocurrency asset intermediaries’ terms and conditions

In a memorandum from 19 June 2023, the SCA revealed its hand on what it considers to be unfair standard terms for a cryptocurrency asset intermediary, which is active in the Swedish market. The memorandum serves as a 22-page-long consumer and marketing compliance checklist, which should be closely studied by any intermediary who aims to precede the SCA before its scheduled follow-up review in 2024.

Background

Looking back over the past year, the cryptocurrency industry has been quite volatile with the bankruptcy of FTX Trading Ltd, and an investment climate which favours more traditional, ‘safe’ assets. That being said, some green shoots can be discerned. One such green shoot is Coinbase’s recent approval to offer American customers the option to trade cryptocurrency futures, effectively allowing cryptocurrency assets into the “futures club”, alongside other pristine members such as wheat, oil, and the S&P 500.

In Sweden, as well as throughout most of Europe; the cryptocurrency landscape is not short of interesting developments, such as the new upcoming EU Crypto Assets Regulation.[1] On a national level, the Swedish Consumer Agency (the “SCA”) recently released a memorandum,[2] covering its findings after having reviewed the terms and conditions of several cryptocurrency asset intermediaries operating in Sweden. In the memorandum, the SCA accounts for various clauses which will require every cryptocurrency asset intermediary’s attention before the SCA’s follow-up review, scheduled in 2024.

In this article, we will take a closer look at the SCA’s memorandum[3], what insights it has to offer, and which actions will be needed by the intermediaries before the SCA’s scheduled follow-up review.

The CCA

In Sweden, there are currently no specific laws regulating the marketing of cryptocurrency assets. Instead, cryptocurrency asset intermediaries are subject to the general rules of inter alia the Marketing Act (2008:486, Sw. Marknadsföringslagen), the Price Information Act (2004:347, Sw. Prisinformationslagen) and the Consumer Contracts Act (1994:1512, Sw. Lag om avtalsvillkor i konsumentförhållanden ”CCA”).

Under the CCA, the Patent and Market Court (“PMC”) may prohibit a trader from using a specific contractual clause, if the clause is deemed unfair to the consumer and the prohibition is justified from a public perspective or otherwise serves the interest of consumers or competitors. A prohibition by the PMC shall, as a rule, be accompanied with a conditional fine for any non-compliance by the trader, and shall further cover the use of any clauses which are essentially the same as the one prohibited by the PMC.[4] In addition to the PMC, the Consumer Ombudsman may also in some cases issue an injunction calling for a trader to cease with the usage of a certain contractual clause.[5]

What constitutes an “unfair” clause under the CCA is preceded by an overall assessment of the rights and obligations of the parties and can, typically, be divided into three main groups: (i) clauses that contravene mandatory legislation or general legal principles, (ii) clauses that contravene permissive law and where the outcome results in such a significant disadvantage for the consumer that there is no reasonable balance left between the parties, and (iii) clauses that are so misleading or unclear that the consumer is misled in their meaning of the consumer’s rights. Other relevant factors for the overall assessment of what constitutes an “unfair” clause are, for an example, the type of service or goods covered by the agreement, or if the clause has been subject to individual negotiation between the parties, or if it constitutes so-called “standard terms”.

In order to extract the legislators’ intention over what constitutes an “unfair” clause, one must closely study the available case law. In addition to relevant case law, further guidance can also be sought in the so called “grey list”[6], which contains a set of clauses which are typically considered unfair. However, it should be noted that the list is both non-binding and non-exhaustive, meaning that other types of clauses, other than the ones mentioned, can also be considered unfair (and, of course, vice versa).

Contractual Clauses Questioned by the SCA

In its memorandum, the SCA mainly focuses on clauses relating to, jurisdiction, arbitration, class action, requirements for written termination, notices of change in terms and conditions, and disclaimers.[7] In the following, we will discuss the SCA’s reasoning and share our view as to what can be considered ‘best practice’ after the memorandum.

Jurisdiction, Arbitration and Class Action

Regarding clauses relating to jurisdiction, arbitration, and class action, the SCA refers to the grey list and states that terms which excludes or hinders the consumer’s right to take legal action or exercise any other legal remedies, typically are to be considered unfair. In particular, this includes terms which state that any dispute between the trader and the consumer shall be settled by arbitration, or where the consumer is unduly restricted to evidence that should typically be available to the consumer, or otherwise if the consumer is imposed with a burden of proof which by law should lie with the cryptocurrency asset intermediary.[8]

The SCA’s standpoint regarding jurisdiction, arbitration and class action clauses aligns with standard market practice. Therefore, cryptocurrency asset intermediaries should ensure the formulation of, or otherwise amend, their terms in accordance with the views expressed in the memorandum.

Requirements for Written Termination

One of the more interesting standard clauses which the SCA discusses is the requirement for written termination. In its memorandum, the SCA points out that several cryptocurrency asset intermediaries include terms through which the consumer is imposed with requirements to terminate the agreement in writing, and that such requirements are to be considered unfair under Article 3 of the CCA, following applicable case law. The statement should not be interpreted as a general prohibition for an intermediary to impose terms regarding written termination, but rather that it is not allowed to only offer the consumer the option of terminating an agreement in writing.

A consumer’s utilization of a cryptocurrency asset intermediary’s services may involve assets which can amount to a considerable sum. Arguably, a safe, easy, and accessible option for consumers to terminate their agreement with the intermediary would be by offering an online termination option through the consumer’s account, which is nearly considered standard practice these days. However, according to the SCA, an intermediary which exclusively offers this way of termination, is in breach with Article 3 of the CCA. Instead, in order to be compliant, the intermediary must also offer alternative methods for termination. Other termination methods might include contacting the intermediary by phone call or visiting their local offices. In our view, it could be questioned whether such options  in practice actually makes any difference, given that the average Swedish consumer is generally very familiar with using the internet and availing of digital tools.

It should be noted that terms which stipulate a requirement for written termination are not formally included in the grey list, meaning that there is no assumption that such a requirement is to be considered unfair. Instead, case law ultimately determines whether the clause can stand or fall. Regardless of the SCA’s standpoint regarding written termination, we hope that future case law will address and clarify whether providing alternative termination methods truly serves the consumer’s best interests or merely imposes unnecessary and burdensome regulations on intermediaries.

Notices of Change in Terms and Conditions

Another interesting and notable aspect relates to how terms may be changed. In its memorandum, the SCA concludes that several intermediaries reserve the right to alter the terms at any time, at their own discretion, and without any obligation to notify consumers about the changes. Additionally, the consumers are referred to the intermediaries’ websites, where they can access the latest version of the terms and conditions.

Clauses which give the trader the right to unilaterally alter the terms and conditions are included in the grey list and are typically considered unfair.[9] However, the grey list exempts suppliers of financial services, effectively allowing them to unilaterally alter the terms in an ongoing agreement without a valid reason, provided that the supplier informs the consumer with reasonable notice and that the consumer is free to dissolve the contract.[10] In its memorandum, the SCA states that services offered by a cryptocurrency asset intermediary does not formally qualify as a financial service. However, the SCA argues that the intermediary’s services should analogously qualify as a financial service, whereas the exemption in the grey list is applicable.

More interestingly, the SCA also discusses terms through which the intermediary is allowed to unilaterally add or withdraw various cryptocurrency assets (or adjust trading volumes), without any obligation to inform the consumer about such changes. According to the SCA, any change in the intermediary’s offering is to be considered an amendment to the terms and should be treated like other alterations. However, we believe that there is a distinction between adding and withdrawing cryptocurrency assets from an intermediary’s platform. For an example, when cryptocurrency assets are withdrawn from the platform, it can significantly impact the consumer’s investment strategy or disposition of its assets. Because of these potential implications, we assert that any changes which include the withdrawal of cryptocurrency assets should be accompanied by reasonable notice. On the other hand, considering that the same implications do not occur when an intermediary is adding assets to its platform, it could likewise be questioned as to whether the same principle should apply, and whether the action necessitates the intermediary to notify the consumer of a change in the terms.

Disclaimers

In its review of disclaimer clauses, the SCA refers to the legislative history of the CCA and states that terms which contradict mandatory general legal principles – even if such principles are not explicitly stated through law – are prohibited. Here, the SCA illustrates its point and refers to terms where a trader exempts itself from liability in cases of gross negligence, or when a trader applies terms with the intention of circumventing mandatory legal provisions.

To summarise, the SCA primarily objects to two types of disclaimers. The first type includes sweeping disclaimers that, in practice, covers all situations where a consumer has suffered damages, regardless of the cause, including situations resulting from the trader’s negligence. The second type of disclaimer involves traders capping the amount of compensation consumers can receive for damages caused by the trader. In reference to the second type, the SCA cites the case of MD 2002:23. In this case, the trader had an annual liability cap of SEK 10,000, intended to cover all damages. The court determined that this cap restricted the trader’s liability, even when general principles would require higher compensation than SEK 10,000. Therefore, the cap was deemed to be unfair according to Section 1(b) of the grey list.

In our opinion, one could question whether MD 2002:23 should be interpreted as a general prohibition against liability caps. For instance, Section 1 (b) of the grey list states that terms which “inappropriately” exclude or limit the legal rights of the consumer towards the trader, in the event of total or partial non-performance or inadequate performance by the trader, may be regarded as unfair.[11] Based on the wording of Section 1 (b) of the grey list and, by extension, the court’s ruling, liability caps that are appropriate could potentially be considered reasonable and thus allowed. What constitutes such an appropriate liability cap remains unclear. However, an informed conjecture would be that the amount of the liability cap, in conjunction with the specific nature of the trader’s business, is highly relevant in making this determination.

Summary

As of today, there are no specific laws regulating the marketing of cryptocurrency assets. Therefore, inter alia, the CCA must be consulted when reviewing a cryptocurrency asset intermediaries’ terms and conditions. In simplified terms, a term which is deemed unfair under the CCA may be prohibited by the PMC if this is justified from a public perspective or otherwise serves the interest of consumers or competitors. The determination of what qualifies as an “unfair” term involves an overall assessment, with the grey list serving as important interpretative data.

Our general assessment is that the SCA’s memorandum – in most cases – accurately reflects applicable law and serves as a helpful “checklist” for the actions which an intermediary must undertake before the scheduled follow-up review in 2024. However, in our view, the SCA’s conclusions can to some extent be probed further, especially regarding requirements for written termination, notices of change in terms and conditions and disclaimers. Here, additional assessments must be made individually, on a case-by-case basis. In this regard, we therefore welcome additional case law which will ultimately help to shed light on these questions and concerns, which emanate from the current lack of clarity.

[1] In the 2022 issue of Setterwalls FinTech Report, we discussed the new upcoming EU Crypto Assets Regulation (“MiCA”). For more information regarding the upcoming MiCA regulation, please be referred to The Upcoming EU Crypto Asset Regulation (MiCA) – are NFTs to be regulated like crypto? Available here.

[2] The memorandum is available in Swedish and can be read here.

[3] In the memorandum, the SCA also reviews the cryptocurrency asset intermediaries marketing activities. However, in this article we will only be discussing the SCA’s review of the contractual clauses.

[4] Section 3  of the CCA.

[5] Section 7 of the CCA.

[6] The ”grey list” is an appendix to directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, which implementation led to the CCA. In Sweden, the appendix was not included in the CCA, why the “grey list” can either be found in the legislative history of the CCA, alternatively in the appendix to the directive 93/13.

[7] In its memorandum, the SCA also review cryptocurrency asset intermediaries’ liability for information published on its website. However, since the review in that regard is mainly conducted from a marketing perspective, and under the Marketing Act, it will not be discussed in any further detail in this article.

[8] Section 1 (q) of the grey list.

[9] Section 1 (j) of the grey list.

[10] Section 2 (b) Paragraph 2 of the grey list.

[11] Again, it should be noted that the grey list solely holds a guiding, non-binding, position in Swedish law.