ESMA issues recommendations to improve investor protection

ESMA published its final report to enable investors to get the key information required to make well-informed investment decisions both quickly and easily, whilst also protecting them from aggressive marketing techniques and detrimental practices. ESMA proposals aim to achieve a high level of investor protection, whilst ensuring that retail investors can benefit from digitalisation opportunities.  The recommendations include:

  • 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 KID;
  • possibility 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 supports the Commission’s proposal to prohibit the receipt of PFOF to adequately address the serious investor protection risks arising from this practice. ESMA’s report has been sent to the Commission.

Harshil Patel