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Aggressive, misleading financial advertising targeted by the EU

The Commission is preparing a retail investment strategy for the first half of 2022. The initiative for adopting an EU strategy for retail investors aims to ensure that consumers who invest in capital markets can do so with confidence and trust. In line with the Commission’s stated objective of “an economy that works for people”, the Commission is seeking to ensure that a legal framework for retail investments is suitably adapted to the profile and needs of consumers, helps ensure improved market outcomes, empowers retail investors and enhances their participation in the capital markets. The strategy will cover a range of initiatives designed to provide the necessary level of confidence and assurance for retail investors.

Currently, the downside of the technological advancements enabling wide options for investing in various online forms without a set of rules for financial advertisements and a lack of comprehensive information is that it entices a lot of speculation and a kind of gamification of the way retail investors engage in financial markets. Accordingly, the commission asked the European Securities and Markets Authority (ESMA) for advice and set out several recommendations at the end of May 2022, including a revision of the Markets in Financial Instruments Directive (MiFID) to give national regulators powers to take timely and effective actions against misleading marketing practices. Another objective of ESMA is to have the EU law include a definition of what constitutes marketing communications to clarify that online advertising is also covered, while also ensuring that financial promotions on social media contain at a glance information to potential investors. This means that investors should be able to not just see the headline that they can earn lots of money with an investment, but also have the vital information on it and that it comes at a cost and comes with a risk. Ultimately, developing a standard format for information on costs and charges across financial products could mean a great accomplishment towards educating investors.

ESMA will do further work with national regulators to counter aggressive marketing and make sure firms are properly meeting requirements, and also recommended that disclosure documents issued by banks and other financial firms should be machine readable to help create public databases, and aid comparison websites and automated advisors.

As for the communication about the EU strategy for retail investors, the originally posted deadline ends by July 2022, more information might be available in the coming weeks.