ESMA Reviews Marketing of Financial Products in EU with Emphasis on Risky Instruments

The European Securities and Markets Authority (ESMA), which oversees and regulates the EU’s financial markets, is making moves to cover risky instruments. EMSA issued a press statement on 16th January 2023, announcing the commencement of a review of a common supervisory action (CSA) on the marketing of financial products.

EMSA's Consideration of Marketing Financial Products

This announcement comes two weeks after ESMA rebranded its logo. According to the press statement, EMSA will implement the Markets in Financial Instruments Directive (MiFID) II regulations to address the promotion of financial products in the EU. The implementation will be in conjunction with National Competent Authorities (NCAs) of Member States.

The United Kingdom's Financial Conduct Authority (FCA) is expected to be the model for EMSA in this regard. This comes after the FCA adopted crucial measures in 2022 to prohibit fraudulent financial advertisements and promotions. The FCA also unveiled new metrics to assist the public in identifying fraudulent financial advertisements.

ESMA is aware of marketing communications and ads' influence on consumer behavior towards investments. Hence, ESMA's anticipated supervisory action will allow traders and intending traders to identify potential greenwashing techniques frequently used in marketing communications.

EMSA expressly stated that it is "starting the exercise to evaluate how investment companies and credit institutions have applied the MiFID II standards for marketing communications." The Authority hints that its activities will be transparent and findings made public. 

The collaboration between EMSA and the CSA will help the financial regulator achieve its goal of having NCAs share a similar supervisory culture across the EU. This collaboration will equally advance reliable, thorough, and uniform regional supervision in the region.

CSA Rules on Online Promotions

Following the CSA, NCAs will henceforth assess marketing communications. The NCA will investigate various financial firms' promotional and advertorial activities to ensure they are straightforward and unbiased. They will also evaluate firms' target market choices for campaign materials. 

ESMA intends to highlight increasingly complicated and seemingly unreliable investment products. This may include cryptocurrencies and CFDs. 

According to the financial watchdog, investors with little to no experience are more exposed to potentially aggressive marketing schemes. NCAs will thus examine influencer partnerships, advertisements on social media, and the functionality of mobile banking apps.

The regulator suggests that gathering data on greenwashing tactics in ads and other relevant exchange activities among NCAs will make a huge difference in securing investments. Hence, investors will be protected, and the EU's financial regulations will consistently apply in financial promotions and adverts.