The European Securities and Markets Authority (ESMA) was asked 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 another step in furtherance of the EU’s plan to provide a stronger and more 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, in which individuals are less reliant on traditional ways of banking such as bank loans.
An important aspect of the above mentioned investigation was that ESMA had pinpointed out some weaknesses of the Markets in Financial Instruments Directive (MiFID) regulations, especially national authorities’ lack of power to act against aggressive and/or misleading financial advertisements. According to the Final Report, advertisers in the future would be required to clarify the risk of investments when they launch an ad campaign, detailing not only the bright side of investing, but also 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 a potential new regulation. ESMA will conduct further investigations that involve national authorities, with the goal of combatting aggressive marketing.