Local regulators have been urged to act in unison to combat global financial fraudsters by the International Organization of Securities Commissions (IOSCO) in its final retail investor report handed down late last month.
IOSCO board chair, Jean-Paul Servais, said in a release that as a growing number of retail investors enter the market via globalised trading platforms the sector is becoming exposed to “misconduct by wrongdoers via a wide range of sophisticated tactics to exploit vulnerabilities”.
And the trend has created unique challenges for financial regulators in the battle to safeguard the “interests of retail investors”.
“In today’s digital world, fraud patterns are increasingly cross-border and have no jurisdictional boundaries,” Servais said. “IOSCO’s Retail Market Conduct Report is an overarching and global response to evolving misconduct trends and fraud patterns.”
The report says financial rule-makers will need to work together to crackdown on ‘bad actors’ via better information-sharing, coordinated policing moves while lobbying for “regulatory convergence” to stamp out jurisdictional arbitrage.
“Bad actors in the financial landscape use a range of increasingly sophisticated tactics to build trust and exploit vulnerabilities and opportunities brought about by the pressures of the current economic environment and market conditions,” the IOSCO report says.
But the global peak financial regulatory body is also recommending better oversight of retail trading platforms that – while possibly legal – can expose investors to predatory selling techniques.
“Retail investors are increasingly engaged in ‘self-directed trading’, and technological developments may support the increasing ‘gamification’ of retail investing,” the report notes.
“These trends may have induced inexperienced investors into trading more frequently than they would otherwise and taking on risks outside their tolerance and beyond their financial capacity.”
Many retail investors also trade on platforms based in territories outside their home jurisdiction, which further complicates regulatory efforts.
“Joint and/or coordinated enforcement investigations could be useful tools against cross-border actors,” the IOSCO report says. “… the issue of jurisdictional reach would require enhanced cooperation among the IOSCO membership and ensuring that the cooperation infrastructure… remain fit for purpose. Such enforcement cooperation could take the form of conducting coordinated investigations against bad actors operating internationally and employing coordinated disruption against bad actors.”
IOSCO also singles out crypto-trading platforms for particular attention, noting retail investors lost some US$1.6 billion via fraud in the sector in the first eight months of last year alone.
“Crypto-asset trading platforms and intermediaries do not operate in a regulatory free space, and many are operating in non-compliance with existing regulations,” the report says. “… regulators can consider using regulatory intervention powers, if available, to mitigate cross border crypto-asset retail investor harm where appropriate.”
More than two years in the making, the IOSCO report is intended as a blueprint for regulator members to police fraud and minimise retail investor harm as technology transforms market access.
Regulators have some catching up to do, however.
For example, last week the US-based trading platform, Interactive Brokers, announced a partnership with payments firm, Wise, “to make global investing easier”.
Steve Sanders, Interactive Brokers head of marketing and product development, said in the release: “Interactive Brokers serves over two million self-directed investors and active traders in 200+ countries and territories. With the Wise integration, we can offer account funding in more local currencies, enabling greater participation in global markets, diversification of investments, and added protection against local economic uncertainty…”
Interactive Brokers is an increasingly popular choice for NZ retail investors, although the platform is not registered or regulated in the country.