By Alexis Dalitis
K. Treppides & Co Ltd
It is commonly accepted that social media play a defining role in almost every aspect of our everyday life. Especially during periods of crisis and important changes like the ongoing pandemic period we are going through, the discussion as to whether social media can provide a favorable environment for fake news to spread has intensified. Social Media platforms have tried, rather unsuccessfully so far, to limit the spreading of fake news and hate speech through various methods. Social Media users are flooded with information every day. The speed and volume with which information is spread makes it difficult to tell apart which information is valid and which is not. Politics, the pandemic, and the economy are some of the basic pillars for which information needs to be clear and true.
Investment recommendations and social media
To better understand the impact of the material published on social media on the investors’ decisions, we should first provide the exact definition of investment recommendation. The European regulations define investment recommendation as any information that recommends or suggests an investment strategy, explicitly or implicitly, concerning one or more financial instruments or the issuers, including any opinion regarding the present or future value or price of said instruments, intended for the public or for distribution channels such as analyst reports, articles, traditional media, or even social media. As one of the main distribution channels, social media platforms could not have been excluded from the means of disseminating information relevant for possible investment decisions.
Considering the above, the Cyprus Securities and Exchange Commission (CySEC) through an announcement has cautioned any interested parties, namely people who may provide any investment advice through their posts and any investors who may act based on said advice. More specifically, CySEC refers such persons to the statement from the European Securities and Markets Authority (ESMA) concerning investment advice through social media. Basically, ESMA explains the rules that apply in situations where any person, residing inside or outside the EU, spreads information that can be regarded as investment advice concerning any EU financial instruments (stock, bonds) aimed at the general public. For example, spreading information can include opinions about the current or future price of a specific stock.
Misleading information, rules for the protection of investors
Misleading information posted in social media can cause problems to any involved parties and subsequently in society too. Having not as effective filtering of information as needed, the possibility for the exploitation of any investors is imminent. ESMA, having the protection of the public as its primary target, reminds anyone who might provide investment advice of the responsibilities that stem through the EU Directive for Market Abuse. More specifically, anyone who provides investment advice through social media posts must ensure that in every post they include their personal information so that identification may be possible, they should include their sources, they must separate and make clear what constitutes personal interpretation and what constitutes observed facts. Also, it is mandatory to provide the date and time of any post as well as mentioning if there is any possible conflict of interest in relation to a post that can be regarded as investment advice. In case a person regularly posts content that includes investment advice and gives the impression to the public that he or she has investment expertise, then in addition to what was mentioned above, the said person must also make publicly available the methodology used, when are any updated posts expected, as well as any previous history of posts published for investment recommendations.
By implementing the above, any investment advice through social media will be provided with a uniform, specific, and transparent way so that investors could know and evaluate all the information before taking an investment decision. The public should evaluate the validity of the advice and how objective it is and be cautious of any interests that those who provide the investment advice may have. In this way, anyone can express their opinion without potentially harming others in the investments cycle.
Compliance with the rules and fines
As a precautionary measure, the regulatory authorities of the EU are preemptively watching the market’s behavior and will investigate a case if they have a reason. Where the rules are not respected, fines may be imposed as well as any further supervisory actions, including referral to the prosecutor’s office.
K. Treppides & Co Ltd is the largest independent consulting company in Cyprus with an established international presence and offices in Great Britain and Malta. Today the company employs approximately 200 professionals. It offers a full range of consulting, tax, accounting services to groups, companies and investors operating internationally in a variety of financial and business sectors. The Company, which started its operations in 1985, has 36 years of expertise and an elite team of experienced executives who can guide and assist investors and businesses during the establishment process and subsequent investment activity in Cyprus and internationally.
Nicosia: Treppides Tower, Kafkasou 9, Aglantzia, CY 2112, Nicosia, Cyprus
Limassol: Andrea Kariolou 38, Ayios Athanasios, CY 4102, Limassol Cyprus
London:7 Milner Street, London SW3 2QA
Malta: Level 1, Somnium, Tower Road, Swatar, Birkirkara BKR 4012