The European Union’s securities watchdog proposed on Friday that regulators should have more powers to scrutinize financial services to protect retail investors from misleading marketing strategies.
The European Securities and Markets Authority (ESMA) gave recommendations to the EU’s executive European Commission concerning communication standards for online financial platforms.
“Gamification techniques in trading apps and personal recommendations on social media may cause retail investors to engage in trading behavior without understanding the risks involved,” ESMA chair Verena Ross said in a statement.
“We are therefore setting out a number of proposals to ensure that these developments do not compromise investor protection in the EU.”
The recommendations include requiring financial promotions on social media to provide “at a glance” information for investors to demystify heavy financial concepts.
“You should be able to not just see the headline that you can earn lots of money here, but also have the vital information on this, that it comes at a cost, this comes with a risk,” Ross said.
The EU should also work with regulators to target aggressive marketing communications, ESMA said. It added that disclosure documents issued by banks and other financial institutions should be machine readable to help create searchable public databases.
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