The Central Bank has warned investors that the growth of the sustainable finance market has increased the risk that some financial products are not as sustainable as claimed.
The regulator says such “greenwashing” can see investor demand met by products marketed as sustainable but which in reality are not.
“If, through insufficient or incorrect information, investors are misled into buying products that do not meet their sustainable expectations, this will harm the sustainable finance sector which is crucial for the transition to greener economic activities” , says the bank in its latest Securities Markets Risk. Outlook report.
“As sustainable finance has become part of the mainstream investment process, companies need to be aware of their responsibilities in this space to ensure investor interests and market integrity are protected.”
The annual Securities Markets Risk Outlook report identifies the main risks to securities markets over the coming year.
It also outlines the Central Bank’s oversight priorities for markets for the current year.
In the report, the bank also states that it is very unlikely at this time that it will allow funds typically aimed at retail investors to start investing in crypto assets.
He says he has seen an increase in queries about the ability to invest in cryptocurrencies for undertakings for collective investment in transferable securities, UCITS or alternative investment funds (AIFs).
“At this time, while such assets may be suitable for wholesale or professional investors, it is very unlikely that the Central Bank will approve a retail investor UCITS or AIF offering exposure (direct or indirect) to crypto. -assets, given the specific risks attached to crypto-assets and the possibility that proper risk assessment may be difficult for a retail investor without a high degree of expertise,” he said.
Many cryptocurrencies have been subject to extreme volatility and large swings in value in recent years, raising concerns among regulators about their suitability as an investment class.
On the issue of retail investments on the stock market, the bank says there has been an increase in recent times, attributed by some to the impact of Covid-19 restrictions and the low interest rate environment.
It also indicates that trading apps that offer low or no commission rates have changed market dynamics and the profile of the typical investor.
“Retail investing per se is not a concern, but there is a risk of bad actors potentially taking advantage of social media platforms to manipulate the market,” he said.
“In addition to this, there are potential regulatory issues resulting from an increase in recommendations/opinions being disseminated online by unregulated entities.”
“While these comments may be of high quality and conflicts are declared, investor protection and market integrity may be compromised in certain circumstances.”
The regulator’s report also states that it is essential that all companies operating in the stock market have appropriate plans in place to deal with the threat of cyberattacks.
“Without controls and procedures in place to identify and minimize sources of information security risk, businesses run the risk of being subjected to a cyberattack,” he said.
“Cybersecurity has long been an area of focus for the Central Bank, and recent nationwide cyberattacks have reinforced our resolve to ensure regulated financial service providers adequately address this issue.”
On due diligence, the bank says it saw evidence that fund managers and boards were not undertaking sufficient vetting before deciding to appoint third-party service providers.
It also indicates that companies have extensive obligations to detect, prevent and report misconduct, and must verify their compliance with the Market Abuse Regulation.