ESMA Advises to Address Aggressive Marketing Communications

The European Securities and Markets Authority (ESMA) has made recommendations to the European Commission on certain aspects relating to retail investor protection.

The regulator is putting forward proposals in order to make it easier for investors to get the key information they need to take well-informed investment decisions, whilst also protecting them from aggressive marketing techniques and detrimental practices.

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The EU supervisor recommends requiring machine readability of disclosure documents to facilitate the development of searchable databases available to the public. In addition, ESMA and other National Competent Authorities (NCAs) want permission to impose on firms the use of risk warnings for specific financial instruments.

ESMA also advises to address aggressive marketing communications and supports to prohibit the receipt of PFOF to adequately address the serious investor protection risks arising from this practice.

Verena Ross, ESMA Chair, said:"Increased retail participation in financial markets provides opportunities both for savers and for companies seeking financing, and we are encouraged to see that digital trends and new business models are contributing to making investing more accessible to the general public."

"These developments do not however come without risk. Gamification techniques in trading apps and personal recommendations on social media may cause retail investors to engage in trading behaviour without understanding the risks involved. We are therefore setting out a number of proposals to ensure that these developments do not compromise investor protection in the EU."