ESMA argues for stricter investor protection

The European Securities and Markets Authority (“ESMA”) was requested by the European Commission to investigate the state of investment protection and, based on its findings, to provide recommendations. ESMA submitted a Final Report on 29 April 2022, that contains several recommendations for the Commission to consider.

The report is a step in the EU’s plan to provide a stronger and further detailed protection system for investors in reaction to the vast and rapid changes in the field of electronic payment and investing. The goal of the EU is to build up a deeper system, where individuals are less reliant on traditional ways of banking such as bank loans.

An important aspect of the abovementioned investigation was that ESMA had pinpointed out some weaknesses of the MiFID regulations, especially the lack of power of national authorities to act against aggressive and/or misleading financial advertisements. According to the Final Report, advertisers in the future would have to clarify the risk of investments when they launch an ad campaign, detailing not only the bright side of investing, but its repercussions.

Another interesting proposal from ESMA is that banks and financial institutions shall disclose documents required by law in such a way that it is machine readable. This would enable the creation of robot investors and detailed databases, from which the conditions of different financial products would become comparable. Furthermore, ESMA wants the EU to create a definition for market communications, so that the above mentioned would fall under the scope of the new regulation to be made. ESMA will conduct further investigations involving national authorities to combat the aggressive marketing.