The European Securities and Markets Authority (ESMA) warned on Thursday 25 May of the risks associated with investment firms that provide both regulated and non-regulated products and/or services.
“Retail investors often rely solely on the reputation of an investment firm, which leads them to overlook the potential risks of unregulated products and/or services offered by investment firms”, ESMA said in a public statement.
“This is particularly true when unregulated products have an objective similar to that of financial instruments regulated by MiFID II”, it added (see EUROPE 13181/23).
In its statement, ESMA recommends, among other things, that investment firms consider the impact that their non-regulated activities may have on the firm’s overall business as part of its risk management systems and policies.
In addition, ESMA issues a reminder that firms are expected to disclose and provide various documents so that investors can be “fully aware of the unregulated status of these products and services and the fact that they may not benefit from the regulatory protections that apply to investments in a regulated product”. (Original version in French by Thomas Mangin)