Magnifying glass on documents

In conducting compliance reviews, including mystery shopping exercises, European regulators found failings in retail investor marketing, including weaknesses in cost and risk disclosure along with potential greenwashing issues.

The European Securities and Markets Authority (ESMA) published a report detailing the results of compliance reviews by regulators in the region, which raised concerns about various issues including claims about products’ sustainability features, the need for clear and balanced risk disclosures, and the adequacy of certain cost disclosures.

For instance, the regulators found marketing material that claimed a product or service had zero cost, while failing to disclose other fees that may apply.

They also found disclosures that didn’t include risk information or failed to give a balanced presentation of risks and benefits. In the report, ESMA called for required risk disclosures to be displayed prominently.

The report also warned about advertising that could mislead potential clients into thinking that risky products, such as contracts for difference, are suitable for retail investors generally.

Given regulators’ growing concerns about greenwashing, the report also stressed the need for sustainability/ESG disclosures to be fair, clear and not misleading.

To that end, it called for senior management and compliance personnel to ensure that processes and procedures related to the development, design and oversight of marketing materials are designed to mitigate greenwashing risks.

ESMA also called on regulators to be more willing to pursue enforcement sanctions to ensure that compliance breaches in marketing and other communications are uncovered.