Does your company offer or otherwise promote securities to the public? And do you have an approved prospectus? If so, advertising relating to it must comply with certain legal requirements under the Prospectus Regulation. Until recently, in most cases your draft marketing communications were still assessed in advance by the AFM, however, the AFM usually no longer provides you with this service. This means that from now on you will have to assess yourself whether your advertisements meet the standards of the Prospectus Regulation. We will help you on your way.
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What is “advertisement”?
The Financial Supervision Act gives a broad definition of ‘advertisement’. For this reason, the AFM also interprets this concept broadly. According to the law, an advertisement is “any form of information provision that serves to commend or has a recruiting character in relation to a particular financial service or product“. In essence, therefore, the marketing expression aims to persuade the reader to make a purchase. It does not matter whether only positive or also negative aspects of the product are mentioned.
The AFM lists a number of examples of ways in which advertising can be expressed, such as: letters, flyers, brochures, e-mails, advertisements, banners, Google ads, bus shelter posters, websites, radio and TV commercials. In addition, presentations or interviews can also count as advertising.
More specifically, advertising accompanying a prospectus is a communication that:
- is about a specific offer of securities to the public or admission to trading on a regulated market; or
- is specifically aimed at promoting a possible subscription or purchase of securities.
A statement may therefore soon be classified as an “advertisement” within the meaning of the law, which means that the requirements of the Prospectus Regulation apply to it.
When do you get help from the AFM?
The AFM has not completely stopped checking advertising in advance. When you, as an issuer and provider, are involved in a prospectus-regulated offer to retail investors for the first time, you can submit the draft advertisement to the AFM. This is only possible during the prospectus approval process and if you have not used this service before. In such a case, it will point out to you the points of the expression that do not (yet) comply with the Prospectus Regulation. By doing so, the AFM will try to help you to avoid withdrawal or rectification, for instance to prevent damage to your reputation. In all other cases, you will have to assess the marketing statements yourself and put them alongside the bar of the regulations and AFM.
Do the advertising rules apply to your company’s marketing communications?
The advertising rules apply to issuers, offerors and applicants for admission to trading on a regulated market, unless these companies do not have a prospectus requirement.
What advertising rules apply? In other words, what requirements must your advertisement meet?
Any advertisement made in the context of an offer or admission to trading on the regulated market that is subject to a prospectus requirement must independently comply with the following requirements:
- Reference to prospectus;
- Not inaccurate;
- Not misleading;
- Consistent with prospectus;
- Balanced;
- Recognisable;
- Distinct from prospectus; and
- Mandatory warnings.
We briefly explain these points below.
- Reference to prospectus
You must clearly and accurately indicate in your advertising on which website the prospectus has been or will be published. This reference must always be included, so also in advertising with a limited scope, such as a banner. If you do so by e-mail or other electronic means, you must include a hyperlink to the prospectus.
- Not inaccurate and not misleading
The advertisement must be accurate. This means that the information must correspond to reality. In addition, the investor must not be misled, note that an advertisement can also be misleading if you unknowingly mislead the investor. This is the case if risks are not literally named, while other features are explained. For example, if emphasis is placed on the transferability of the security, while there is a certain risk that the security will have limited marketability at some point. Certain behavioural incentives, such as pointing to scarcity (“gone = gone”) are also seen as misleading.
- Consistent with prospectus
This section speaks for itself. The information in the advertisement must be in line with the information contained in the prospectus.
- Balanced
The advertisement must be balanced. Do you point out the advantages to investors? Then you should also mention the disadvantages of the product. Does a product have tax advantages, but tax has to be paid later on? Then you should also mention the latter. For balance, also consider the appearance and layout of the advertisement. The use of ‘feel good’ pictures must be functional and the display of colours, size of letters, will also be taken into account when assessing balance.
- Recognisable
This means that the investor must understand that the information is advertising. This means that all advertising should have the word ‘advertising’ in a prominent place. Do you have an advertisement on the radio? Then you must make it immediately clear that this is advertising.
- Differentiate with prospectus
An advertising brochure can look a lot like a prospectus. The law requires that there must be a clear distinction between advertising and prospectus for the investor. So make sure your brochures are not too long and sufficiently different from the prospectus.
- Mandatory warnings
Does the advertisement refer to the fact that the prospectus has been approved by the AFM? Then mandatory information should be included:
- a warning that the approval of the prospectus should not be regarded as commendation of the securities offered or admitted to trading on a regulated market by the AFM; and
- a recommendation that, before making an investment decision, potential investors should read the prospectus to fully understand the potential risks and benefits associated with the decision to invest in the securities.
What should you take into account?
In the AFM Disclosure Policy Rule, the AFM sets out what it pays attention to when assessing advertisements. This therefore provides a further interpretation of the legal standards.
When does the AFM take enforcement action?
The AFM supervises published advertising on an ongoing basis. If advertising standards are violated, the AFM can take enforcement action by means of an order for incremental penalty payments and/or a fine.
Want to know more?
Projective Group can help you assess your marketing communications. Do you doubt whether your advertisements have to comply with the Prospectus Regulation? Or do you already know, but are curious whether they are in line with legal requirements and AFM policy? Feel free to contact us, we will be happy to help you.