One of the questions which we come across with some frequency in our practice is the question of what constitutes investment advice under the Investment Services Act. This is an important question; if a service is considered to be investment advice under the Investment Services Act then a number of important legal and regulatory implications arise. Investment advisors are required to obtain an MFSA license before commencing operations, which licence would be subject to a number of conditions relating to matters such as conduct of business, capital adequacy and internal organizational structure.
The investment services act defines 'investment advice' in the following manner:
Giving, offering or agreeing to give, to persons in their capacity as investors or potential investors or as agent for an investor or potential investor, a personal recommendation in respect of one or more transactions relating to one or more instruments
The question therefore hinges on the what constitutes a 'personal recommendation'. Clearly the legislator here does not intend any simple recommendation to be deemed to be a 'personal recommendation. ESMA has issued helpful guidance in this regard.
If you are interested in reading more about this topic, follow the link below to the relevant article on our website, which examines the matter in further detail: definition of investment advice.
