Legal Perspective: Need to regulate ads on investment opportunities

There has been a spate of investment advertisements in the UAE and other Gulf countries. Almost all local newspapers and magazines are full of such advertisements inviting people to invest in different types of financial products and offering, in some cases, very lucrative profits.

There are also other types of such advertisements, including letters and pamphlets, e-mails, telephone calls, oral communications, and sometimes private visits.

Every person is fully free to invest his money and also to choose the method and type of investment he prefers. However, this freedom could be misused by opportunistic individuals or groups by offering bad and risky investments through specially tailored investment advertisements.

Many countries regulate and legalise the process of investment advertisements.

In England, for example, and according to the provisions of the Financial Services Act, no person may issue an investment advertisement, such as an information memorandum or offering circular, unless it is issued by, or its contents, has been approved by an authorised person.

The law provides for certain rules as to the prescribed content of investment advertisements and there is tougher liability for misleading information.

This is because the potential investor enters the venture based on the information he grasped from the published advertisement.

For this purpose, an investment advertisement is widely defined to mean any which is likely to lead people directly or indirectly to acquire or dispose of investments.

The same rule applies to collective investment schemes such as unit trusts and other pooled investments.

The sanctions for breach and non-compliance of the law lead to criminal charges for committing the offence, the investment agreement is unenforceable, and money paid is recoverable plus compensation for losses.

The court determines the appropriate compensation.

The rules on investment advertisements commonly provide that the advertisement must be fair and must not be misleading. Moreover, it must contain prescribed information and the necessary risk warnings.

Each investment is associated, as a matter of fact, with certain risks and in all cases the advertisement should highlight the potential risk to enable potential investors to take their decisions based on complete background.

There are certain exceptions to this rule, particularly when the advertisements are only going to 'non private customers', or where these are required or permitted by the law.

The main exemptions are that no investment is involved. The advertisement is issued only to the issuer's own members or creditors and only concern the group's shares or debt.

The advertisement is issued only to investment professionals, large corporate and trusts.

The issuer is a government or public body. A foreign government, a central bank or an international financial organisation such as the World Bank, IMF or other similar regional financial institutions.

The law provides that no unsolicited calls, uninvited personal visits or oral communications may be made to any person in relation to investment agreements.

The sanctions for breach include unenforceability of the agreement and recovery of the paid money, plus compensation for losses.

The above guidelines explain the legal provisions regulating investment advertisements in England, America and many countries in Europe and Asia.

In the UAE, there is a flood of investment advertisements because there are many potential investors.

To protect local investors in all types of financial investments, such investment advertisements should be regulated and closely monitored.

This will definitely streamline investment opportunities and protect all investors from improper advertisements.


The writer is a legal consultant on banking and stock market laws.