Entities from the capital market sector often rely on social media as a key communication channel. However, they still have to follow the same regulatory requirements for information exchange and customer acquisition as they do for traditional methods. The Market Abuse Regulation (MAR) confirms this by treating online channels (including social media) as equivalent to traditional ones. Lately, supervisory authorities have been more active on this issue. In this article, we examine how the European and Polish regulators handle the publication of investment recommendations on social media.Latest warning from ESMA

On 6 February 2024, the European Securities and Markets Authority (ESMA) published a warning to people who post investment recommendations on social media, reminding them of the requirements and risks under the MAR.

The MAR defines investment recommendations very broadly as 'information recommending or suggesting an investment strategy, explicitly or implicitly, concerning one or several financial instruments or the issuers, including any opinion as to the present or future value or price of such instruments, intended for distribution channels or for the public'. Therefore, it is not difficult to cross the line of the concept of investment recommendation by publishing a post on the topic of capital markets. Anyone can produce investment recommendations but they have to comply with different obligations depending on whether they are professionals, experts or non-experts. In particular, ESMA reminded market participants of the information requirements resulting from Commission Delegated Regulation (EU) 2016/958. These obligations include identifying the producers of the recommendation, ensuring the objective presentation of the recommendation, disclosing any conflicts of interest and, for professionals and experts, providing additional information on the basis, frequency and risks of the recommendation.

ESMA also warned about the proper provision of required information disclosures when publishing an investment recommendation. In ESMA’s opinion, it may not be sufficient to include in the recommendation a link that points to a disclosure, as the link may not ensure that the disclosure is clearly presented and immediately accessible to the public. Taking into account the fact that some social media channels have a character limit in posts, entities publishing investment recommendations should pay special attention to the proper implementation of information obligations.

Posting investment recommendations on social media can also entail risks of market abuse, such as market manipulation, insider dealing and unlawful disclosure of inside information. These are serious offences that can lead to administrative or criminal sanctions, depending on the Member State.
ESMA advises people to be careful, informed and aware when posting or following investment recommendations on social media and to stay away from suspicious posts and invitations to take part in strategies aimed at creating trends. ESMA also provides some practical examples of investment recommendations and market abuse scenarios in its document.

Activity of the Polish FSA

The Polish FSA has been active in monitoring social media activities regarding capital markets, including activities of unregulated entities. For example, in October 2023, it published a Statement on the use of referral programs or partnership programs and restrictions on how clients or unregulated intermediaries can promote the investment firm or its brokerage services (LINK). Although the Polish FSA has not issued a separate, official statement on posting investment recommendations, some guidance can be found in its draft Statement on the use of social media by supervised entities and persons employed in these entities published in August 2022 (LINK). The draft Statement aims to provide guidance and clarify the expectations of the Polish FSA regarding compliance with the applicable legal requirements and the management of risks associated with communication through social media channels. This draft Statement was publicly published for consultations, but the final version has not been issued yet.

According to the draft Statement, entities supervised by the Polish FSA should adopt an internal social media policy covering, for example, rules for an internal control system that ensures that all activities are compliant with regulatory requirements and rules. The regulator carefully and thoroughly presents its expectations regarding the use of social media, including the issue of liability for published content and the inadmissibility of using fictitious accounts. The above-mentioned good practices also include the rules for formulating messages published on social media of supervised entities, adapting the level of simplicity of language to the recipients, and correctly marking posts as marketing materials. Regarding the MAR, the Polish FSA warns that publishing false or misleading information, or coordinating orders or transactions to manipulate prices, may constitute market abuse. It also states that social media should not be used to disclose confidential information about issuers or financial instruments. Moreover, it explains that the content and manner of publishing investment recommendations are regulated by the MAR and its implementing regulation, and that the limited space and interactive nature of social media posts increases the risk of making investment recommendations within the meaning of the regulation.

The Polish FSA has not yet published its final Statement on investment recommendations, but it is aware of this issue and may scrutinise the practices of entities that post them. These entities should review their current approach and prepare for any possible regulatory action. Especially considering the fact that the proposed approach of the Polish regulator is much more comprehensive and far-reaching than the current approach of ESMA.

Summary

Social media can be a powerful tool for communication, but it also comes with legal and reputational challenges for entities from the capital market sector who post investment recommendations. They need to comply with the regulatory requirements and obligations that apply to them, prevent and detect any market abuse or conflicts of interest, and follow the guidance from the European and Polish regulators, who have stepped up their oversight and intervention in this area.