Information presented in the media can have a huge impact on investment decisions and stock listings. The Financial Supervision Commission draws attention to this. The KNF issued a communication in which it warns against issuing recommendations of unreliable or conflict of interest and threatens with fines. CSFs can be accused of restricting freedom of expression, but this pattern fits into the action of EU authorities before two years, namely the legal act referred to as the MAR Regulation.
The entry into force of these regulations (MAR) has caused concern due to potentially high financial penalties for something that should constitute an oasis of freedom of speech. Investment recommendations are an integral part of the free market economy.
Some people find it difficult to imagine that they can be punished for their opinion on this matter. The KNF communication may have further stimulated this concern. It can be feared that the direction taken by the EU is contrary to fundamental European values. Is this anxiety right?
Neutral information
Making investment decisions consists of two components. After first economic knowledge, after second – the ability to predict the future. There are no experts in the world who make only good investment decisions. However, any rational strategy must be based on some objective foundation.
Making choices based on expert recommendations is normal. However, it cannot be said that all such recommendations are reliable. Even the best specialists can get carried away with fantasy and advise an option without a factual justification. Cash penalties for unreliable recommendations that KNF scares may make sense in this context.
However, there is a question of how to distinguish between legitimate and unjustified recommendations and who should set such criteria.
Recommendations with personal interest
KNF's communication concerns not only recommendations of unreliable ones, but also – and perhaps above all – suggestions of capital interest. To put it a little more simply – a media company can advise real estate investments because it is capital-linked to a construction company whose investments are of interest.
Moreover, such communication may take the form of information that appears neutral and comes from independent experts. For this reason, the NFA recommends that in such cases, it should disclose circumstances that may have an impact on a personal interest or conflict of interest.
A mechanism that is just in the process
EU regulation on "early warning mechanism" is a construction that has recently been developed and has not had much time for serious testing. However, the direction seems right. The Amber Gold affair can be used to illustrate the importance of this initiative.
This example is not entirely similar because this "company" made recommendations to itself. Elegant offices in the largest cities and a lot of billboards advertising “a medal investment in gold on 8%” may have washed the eyes of some without economic education.
There is no doubt that even without an economic education, you could see pyramidal nonsense. Gold is an asset of variable value. Under no circumstances can it be guaranteed that this aggregate will gain value 8% on a yearly basis. Everyone could see danger, but no one decided in time to say the king was naked.
If there were reliable mechanisms for warning against dubious investments then perhaps tragedy could be avoided. Now no one wants to take responsibility for this affair – neither the prosecution nor the Financial Supervision Committee.