The European Securities and Markets Authority (ESMA) and the regulatory authorities in the EU for the securities markets explain the rules that apply in cases in which a person domiciled in or outside the EU shares information suggesting an investment decision for EU financial instruments (e.g. shares or bonds) for a broader public. The disclosure of information would contain for example an exchange of opinions about the current or future price of a specific stock.
This is called an investment recommendation under EU law.
What is an investment recommendation? Under EU law an investment recommendation is defined as information that explicitly or implicitly suggest or recommend an investment strategy relating to one or more financial instruments or issuers, including an opinion about the current or future value or price of such instruments, that are destined for distribution channels or the general public. Disclosure channels may be analysis reports, articles, traditional media or even social media.
Who should read this statement? Anyone who makes recommendations about financial investments in any shape and form through any platform, as well as anyone making investment decisions based on investment recommendations from any platform. This also applies to social media.
What is the problem? The potential exists to mislead investors. Investment recommendations must be made in a specific and transparent manner, to allow investors to be able to identify and evaluate the following prior to making an investment decision: 1) the credibility of the recommendation – as well as how objective it is; and 2) any interests that the person providing the recommendations may have. In this way anyone is free to express their opinions, without potentially causing damage for other people.
Who provides investment recommendations? As a rule companies like banks or brokers, but also financial analysts. Other persons who propose an investment strategy, could however be considered to be providing an investment recommendation, where the suggestion is intended to be published more broadly. This includes publication on social media. Furthermore, if you frequently provide investment recommendations, want to reach a broad public, and present yourself as being competent in the area of finance, it may be the case that you may be considered as being an expert. In such a case there are further prescribed disclosure obligations.
Where can the rules be found? The rules can be found in the EU Market Abuse Regulation. They prescribe that those persons providing an investment recommendation are required to disclose their identity, to give recommendations in an objective manner, and are required to disclose and relationships or circumstances that would compromise their objectivity. Experts are required to adhere to additional rules.
What happens if the rules are not observed? The supervisory authorities in the EU actively pursue the conduct, orders and transactions of investors in the market. Where necessary they investigate. If the rules on investment recommendations are not observed, then fines or other supervisory measures may be levied, which potentially also may include information being passed on to the Public Prosecutor’s Office.