On 10 October 2024, the Central Bank of Ireland (Central Bank) published a Dear CEO Letter to MiFID investment firms, credit institutions and fund management companies providing MiFID II services to retail clients. In this, the third of three articles on the Dear CEO Letter, our Financial Regulation team examines the remaining key themes identified in the Dear CEO Letter. For further information on the background to the Dear CEO Letter and the actions it requires of firms, please see our previous article here.

Key Themes

Having looked at key themes such as marketing and advertising content not clearly identifiable as such, poor governance and controls and outsourcing arrangements in a related article we now examine some Central Bank expectations/identified good practices in the following areas.

1. Deficiencies in Published Marketing and Advertising Content

• Digital tools and practices – Firms must ensure that marketing and advertising content is as fair, clear and not misleading on digital platforms as on more traditional communication channels. Digitalisation has brought new types of distribution strategies to firms’ marketing and advertising toolkits and firms must ensure that digital tools and practices are developed, designed and delivered in a manner that seeks to secure their clients’ interests.
• Reviews – Firms should conduct before-and-after reviews of marketing and advertising content to ensure compliance with all regulatory requirements.
• High-risk/complex products – Firms must be mindful of the distribution channels and techniques being used, especially regarding high-risk products or products with complex features to ensure that all marketing and advertising content is fair, clear, and not misleading.
• Escalation path – Firms should have a documented escalation path in place that details the actions required when deficiencies are identified in published marketing and advertising content.
• Risk warnings – Information about risks and benefits, including required risk warnings, must be presented in a balanced manner, regardless of the means of dissemination.
• Plain English – The use of complex language, financial jargon and/or abbreviations should be avoided. If any such language is included, a glossary should be available to investors providing a clear, ‘plain English’ explanation as to what is meant. Moreover, it is generally a good practice to include a glossary explaining abbreviations and financial terms.
• Functioning hyperlinks – Firms must ensure that all hyperlinks function and bring the investor to the relevant information.
• Labelling of financial instruments – Financial instruments must always be clearly labelled with the categories to which they belong (e.g., CFDs, options, or future contracts). In the case of derivative products, the labelling must ensure that it is clear to the investor that they are investing in a derivative product and not the underlying asset of the product.
• CFD Intervention Measure – Where relevant, firms must always demonstrate compliance with the Central Bank’s CFD Intervention Measure.
• Restrictions applying – Information about any restrictions that may apply referenced in social media posts must be readily and easily accessible to investors through a linked, dedicated landing page on the firm’s website, for example.
• Using Instagram to share content – When using Instagram to share content, firms should not ‘link’ posts to ‘Stories’ in circumstances where further information pertaining to that post is contained within the ‘link’. Firms must use alternative Instagram features, whereby the ‘linked’ content is always readily and easily accessible. When using Instagram, it is good practice to use its alternative in-app features to ensure that ‘linked’ content remains permanently and easily accessible.
• Unrelated content – Firms must ensure that all content included in a post is related to that post, unrelated content should not be included to influence investor behaviour.
• Sense of urgency – Firms must ensure that marketing and advertising content is not designed in such a way as to create a sense of urgency to “act now” to influence investor behaviour.
• Information accessibility – In circumstances where there is a space or character limitation, for example, banner ads or search engine optimisation/pay-per-click ads, firms should link a dedicated landing webpage to the ad where all pertinent information is readily and easily accessible.
• Information consistency – A good practice is to ensure that all information is presented using the same font size and colour, the same ‘tone of voice’, and information regarding risks and benefits is equally visible, balanced and understandable in a consistent manner across all distribution channels/means of dissemination.
• Compliance sign-off / checklist – It is a good practice to establish a clearly documented sign-off procedure, with the Compliance function playing a key role in the sign-off of all marketing and advertising content, ensuring that it is compliant with all relevant requirements, fair, clear, and not misleading, presented in a way that is likely to be understood by a retail investor, and appropriate for the target audience to whom it is directed or by whom it is likely to be received. The use of a Compliance function-approved checklist at both the content creation stage and the review and approval stage is helpful. It is also useful for the Compliance function to document the outcome of the post-publication review of marketing and advertising content by using a checklist. The checklist signposts an escalation path in respect of the identification of deficiencies, should any be identified.
• Audit trail – It is recommended that a clear audit trail be maintained for the approval of all published marketing and advertising content.
• Staged online environment – It is recommended that content be reviewed in a ‘staged’ online environment prior to publication to ensure compliance with relevant regulatory requirements.

2. Monitoring of Published Marketing & Advertising Content and Compliance Function Review

• Review – Firms are expected to conduct a regular end-to-end review of the Marketing and Advertising process. The frequency of the review should be documented in the firm’s policies and procedures and approved by senior management and the Board. It is a good practice to have a Compliance mandate that defines the frequency (for example, annual, quarterly, ad hoc) of the Compliance function’s post-publication review of different types of marketing and advertising content. This is in addition to conducting quarterly quality assurance reviews of online content. Using the ‘four-eyes review’ approach with clear segregation of duties in the Compliance function in respect of pre-publication approval and post-publication review of marketing and advertising content (i.e., one compliance team member approves content prior to publication, while a different team member performs the post-publication review and monitoring of published content) is highlighted as a good practice in this regard.
• Escalation – Firms should document an escalation path detailing the actions required when deficiencies are identified in published marketing and advertising content.
• Risk Matrix – It is a good practice to use an internal risk matrix to consider the impact of any identified deficiencies in published marketing and advertising content as part of the post-publication review.

3. Identification of Target Audience

• Internal controls – Firms are expected to have an internal control environment that is sufficiently robust to ensure that any information disseminated to clients or potential clients is directed at an identified target audience so that the firm’s distribution strategy is ultimately consistent with the identified target market. It is good practice to align the identification of the target audience for marketing and advertising content with the relevant target market identified as part of the product governance process. Examples of firms tailoring approaches to ensure that marketing and advertising content reach the intended target audience include restricting the geographical location of the audience, dictating the audience for paid social media posts and creating dedicated landing website pages with differing information depending on the client profile/type (i.e., execution only versus advisory clients).
• Define target audience – Firms must define and articulate the characteristics of the target audience for all marketing and advertising content, irrespective of the channel(s) of distribution adopted by the firm. It is good practice to document the characteristics of the client profile considered most suited to a firm’s product or service and those clients least suited to each product or service.
• Sign off – The definition or characteristics of the target audience should be clearly documented as part of the firm’s marketing and advertising policies and procedures and approved by senior management and the Board.
• Measure and record – Firms should measure and record the effectiveness of their published content to ensure it reaches the defined target audience.

For a copy of the Dear CEO letter please see here. For further information on other key themes analysed by our Financial Regulation team please see our related article.

Contact Us

For more information on anything above, please contact Shane Kelleher, Patricia Taylor, John Aherne or any member of the Financial Regulation unit or your usual William Fry contact.

Contributed by Jane Balfe.