29 April 2022

ESMA makes recommendations to improve investor protection

In the advice ESMA puts forward proposals that will make it easier for investors toget the key information they need to take well-informed investment decisions, whilst alsoprotecting them from aggressive marketing techniques and detrimental practices.

The European Securities and Markets Authority (ESMA), the EU securities markets regulator,
today advises the European Commission on certain aspects relating to retail investor
protection.

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”.
The proposals put forward aim at maintaining a high level of investor protection, while ensuring
that retail investors can benefit from digitalisation opportunities. The recommendations relate
to, among others:
• requiring machine readability of disclosure documents to facilitate the development of
searchable databases available to the public;
• addressing information overload by proposing to define what is vital information and by
using digital techniques such as layering of information;
• development of a standard EU format of information on costs and charges and aligning
the disclosures under MiFID and the PRIIPs KIpossibility for NCAs and ESMA to impose on firms the use of risk warnings for specific
financial instruments;
• addressing aggressive marketing communications; and
• addressing issues related to misleading marketing campaigns on social media and the
use of online engagement practices, such as the use of gamification techniques by
firms or third parties.

In addition, ESMA also supports the Commission’s proposal to prohibit the receipt of PFOF to
adequately address the serious investor protection risks arising from this practice.

ESMA

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