Investment firms to consider the findings of CBI review of MiFID marketing and advertising requirements

The Central Bank of Ireland (CBI) recently issued a Dear CEO Letter to the investment firms’ industry outlining the findings from a thematic review of compliance with marketing and advertising requirements. Many of the deficiencies identified in the letter relate to advertising content, governance framework and outsourcing arrangements. The letter also sets out specific actions that all Irish-authorised firms providing investment services to retail clients should undertake by the end of January 2025.  

Background

The review, which was part of a common supervisory action (CSA) coordinated by the European Securities and Markets Authority (ESMA), assessed a sample of Irish investment firms’ and credit institutions’ compliance with the marketing and advertising requirements in the European Union (Markets in Financial Instruments) Regulations 2017 and Commission Delegated Regulation (EU) 2017/565. The review focused on these requirements in the context of the provision of investment services to retail clients only.

The CBI also conducted a ‘mystery shopping exercise’, complementing the CSA, that sought to understand how retail investors engage with marketing and advertising content published by firms. The CBI’s findings from the mystery shopping exercise are outlined in a recently published Consumer Research Bulletin.

Findings

The CBI has set out its detailed findings under specific themes, together with examples of good practices and specific expectations which firms should consider. The themes and a summary of the deficiencies identified by the CBI are set out below.

Marketing and advertising content not clearly identifiable as such:

• failure to classify published content as a marketing communication or advertisement
• where a firm included reference to content being a marketing communication, the reference was not always prominent and/or clearly identifiable
• failure to clearly identify ‘educational material’ or ‘thought leadership’ content as marketing content where appropriate to do so

Deficiencies in published marketing and advertising content:

• imbalanced, unclear and potentially unfair or misleading content published on digital channels, for example:
   
  • social media content referring only to potential benefits and not to relevant risks
  • practices whereby a firm’s posts are linked to 'stories' on Instagram, resulting in the post remaining in the firm’s Instagram feed but the linked content disappearing from the ‘stories’ after 24 hours
  • practices whereby a notice that 'Restrictions Apply' is included on social media posts without explaining what the restrictions are and who they apply to
     
• where firms use influencers to engage in marketing and advertising activities on their behalf, failure to conduct post publication reviews of the influencers' published content to ensure compliance with the firm's policies and procedures or legal requirements
• failure to include risk warnings relating to contracts for differences, or failure to include the risk warning in a compliant manner, in published content

Poor governance and controls:

• marketing and advertising policies and procedures do not set out an appropriately robust internal control environment
• failure to document the control environment in a policy or procedure document
• failure to have a specific policy or guidance in respect of digital marketing and advertising

Outsourcing arrangements:

• failure to have a documented service level agreement (SLA) in place with respect to the outsourcing of some or all of the marketing and advertising function to a parent company or group company
• the absence of a documented SLA resulted in the failure to define roles, responsibilities, functions and reporting lines for the firm or service provider, inability to demonstrate oversight of marketing and advertising content published by the service provider and inability to demonstrate how the firm measures the quality of the outsourced service

Monitoring of published content and compliance function review:

• failure to employ a ‘lines of defence’ model (four-eye review/independent review) in respect of the compliance function's review and approval of marketing and advertising content pre-publication or post-publication
• failure to have a documented escalation path in place for deficiencies identified during the post-publication review of published marketing and advertising content
• failure to include the review and monitoring of published marketing and advertising content in the annual compliance monitoring plan
• failure to perform an end-to-end review of the effectiveness of the marketing and advertising process

Identification of target audience:

• absence of policies and procedures to ensure that the characteristics of the firm’s target audience is appropriately defined
• in cases where the marketing and advertising function was outsourced, the identification of a target audience was at the discretion of the marketing department and there was a failure to measure the effectiveness of published content, including if the identified target audience was reached

Actions for all firms to take

The CBI has requested all investment firms, credit institutions and fund management companies providing MiFID services to retail clients to undertake specific actions. They must review their current marketing and advertising practices against the findings, good practice examples and expectations outlined in the Dear CEO Letter and the findings in ESMA’s report on the CSA. The review must be documented and include details of actions taken to address the findings of the CBI and ESMA. The review should be completed, and an action plan discussed and approved by the board, by 31 January 2025, with the minutes of the board meeting reflecting the discussions and approval of the board.

The CBI emphasised that, in general, it is the board’s responsibility to ensure that robust governance, internal control and oversight arrangements are in place, and that sufficient resources are deployed, to ensure that the firm can demonstrate its compliance with all relevant regulatory requirements on a continuous basis.

For further information on any matters discussed in this briefing or to discuss how we can assist your firm with conducting a review of its current marketing and advertising practices, please contact Patrick Brandt, Partner, Ciara Brady, Senior Associate, Louise Hogan, Senior Associate, Sarah Lee, Senior Knowledge Lawyer or any member of ALG's Financial Regulation Advisory team. 

Date published: 25 October 2024