Social Networks and Financial Advice

November 26, 2022

EQAFIT suggests including awareness of the Regulation of investment
recommendations and the distinction between investment recommendations and financial
advice in any financial training, especially that carried out periodically for advisers as well as
that aimed at other educational levels, especially young people, and why not, also for the
population in general.

Article:

The National Securities Market Commission has announced through a statement about the
possible breaches that some influencers are incurring when issuing investment
recommendations through social networks.

Regulation of investment recommendations

As explained by the CNMV, it is likely that some experts mistakenly think that the fact of
transmitting their communications through social networks or verbally does not imply
compliance with the European Union regime on investment recommendations. In this sense,
the supervisory body will contact them preventively to request certain clarifications about
their professional activity.

The objective of this review is to require them to comply with the obligations established in
Regulation (EU) 596/2014 of the European Parliament and of the Council of April 16, 2014 on
market abuse and in the Delegated Regulation (EU) 2016 /958 that develops it. In particular,
the regulations establish that investment recommendations be clear, exact and objective and
that those who make them correctly identify themselves and disclose all relationships or
circumstances that may affect their objectivity, in addition to ensuring equal treatment with
supervised persons and entities that issue recommendations.

Regulation (EU) 596/2014 of the European Parliament and of the Council defines the
investment recommendation as "the information in which an investment strategy is
recommended or suggested, cleanly or implicitly, in relation to one or several financial
instruments or with issuers, including any opinion on the current or future value or price of
those instruments, intended for distribution channels or the public.” Among the channels of
dissemination are the media.

In this, the European Securities and Markets Authority (ESMA, for its acronym in English)
published a statement in the material sense of investment recommendations in social
networks in which it explained, among other issues, the type of activities subject to regulation,
the possibility of misleading investors and the corresponding regulations.

Investment recommendations vs financial advice

For purposes of determining the scope of investment recommendations, it is crucial to
distinguish it from financial advice.

In order to identify an investment recommendation, its content must be taken into account,
that is, if an investment strategy is recommended, such as buying, selling or holding financial
instruments, regardless of the name given to it and the way in which it is presented.

While investment recommendations include information of a generic and non-personalized
nature intended for specific distribution channels or the general public, financial advice is an
investment service intended to offer personalized recommendations, for which the financial
adviser must comply with its obligations to know your client by carrying out the suitability test
to adjust your recommendations to your investor profile and sustainability preferences.