The EU’s markets watchdog has warned investors about the risks of following investment recommendations made on social-media platforms.

The European Securities and Markets Authority (ESMA) issued a statement last week in response to a rise in investment recommendations made on social media, and a concern that retail investors are not aware of the risks associated with following such recommendations

The regulator said that investment recommendations had to be “produced and disseminated in an objective and transparent way”, so that investors could distinguish fact from opinions.

"It is also crucial that investors are able to easily identify the source of information, and any conflicts of interest of those making the recommendations,” it added.

Strategy

EU law defines an investment recommendation as “information recommending or suggesting an investment strategy, explicitly or implicitly”, including any opinion on the present or future value of financial instruments.

ESMA said that its statement was aimed at reminding those who recommend investments on social media of the rules governing such suggestions – and what would happen if they were not respected.

The watchdog warned those giving investment advice on social media that they faced fines or other enforcement actions if they broke the rules.

In cases where false or misleading information was disseminated, there could be a referral to public prosecutors for market manipulation, the ESMA added.