The International Organization of Securities Commissions (IOSCO) has mooted a series of ‘good practice’ measures for regulators to combat increasing risks posed by unlicensed online financial spruikers.
In a new consultation, IOSCO notes the global trend of self-appointed financial experts dispensing advice via social media in particular is “transforming how retail investors, particularly younger generations, make investment decisions”.
But while so-called ‘finfluencers’ may bring some educational benefits, their loosely constrained activities also come with risks such as “the possibility of spreading misleading or biased information, promotion of high-risk products, and inadequate disclosure of any conflicts of interest”.
The perceived free-rein given to online financial mouthpieces has been galling for many licensed advisers operating under increasingly onerous regulatory frameworks in many countries.
Among a raft of recommendations for regulators, the IOSCO consultation says jurisdictions should consider updating legal regimes to explicitly police finfluence if necessary.
The peak body for global regulators found in a member survey that “many activities currently undertaken by finfluencers may already fall within the scope of existing legislation, but other activities may not”.
“Where this is the case, regulatory authorities could consider adapting their regulatory frameworks, where feasible, to keep pace with new market developments,” the consultation says.
Furthermore, IOSCO suggests regulators should better-monitor the finfluencer community – through, for example, data analytics of social media activities – and enforce breaches.
“Regulators could consider taking actions against intermediaries and finfluencers that do not adhere to existing legislation and regulation,” the paper says. “Tools typically available to regulatory authorities could include issuing fines, revoking licenses, issuing cease-and-desist orders, and publicizing enforcement actions to deter non-compliance.”
Policing what amounts to unlicensed financial advice online has proved difficult to date in many countries, the IOSCO report says, although regulators are beginning to crack down on some wayward finfluencing.
“Fifteen regulators (representing 44% of the surveyed regulators) have already taken enforcement actions or imposed sanctions on finfluencers,” the consultation document says. “Additionally, four regulators indicated that enforcement actions were taken against financial intermediaries using finfluencers. Five regulators (representing 15% of the survey respondents) reported that enforcement actions were taken by local authorities other than financial regulators.”
IOSCO notes that better cooperation between regulators across the world is likely to increase given the trans-border scope of finfluencer content.
“… regulatory authorities often conduct joint investigations and coordinated enforcement actions to address cross-border issues,” the paper says.
“Regulatory authorities could consider making use of those mechanisms in the case of cross-border activities conducted by finfluencers or market intermediaries making use of finfluencers.”
Financial regulators highlighted a number of finfluence risks in the survey, including:
- offering of unlicensed financial services;
- increased fraud and scams;
- promotion of “unsuitable, risky, or inappropriate products to unassuming investors”;
- supply of potential misleading content and poor disclosure;
- undisclosed conflicts of interest; and,
- celebrity spruikers.
Submissions are due by January 20 next year.
The finfluencer consultation is one of three published by IOSCO last week as part of its ‘roadmap’ to improve retail investor safety – papers covering ‘copy trading’ and ‘digital engagement practices’ are also open for comment.
IOSCO has “five waves of targeted action” slated over the next 12 months under the roadmap plan, according to a release.
Derville Rowland, IOSCO retail investor coordination group chair, said in the statement: “The online and cross-border nature of product offerings exacerbates potential risks to retail investors everywhere. Our New Roadmap outlines how IOSCO will engage with market participants on appropriate market conduct online and with social media and internet platforms globally to work with us to help combat retail fraud and eliminate bad actors.”
IOSCO boasts membership covering 130 jurisdictions representing 95 per cent of regulated financial markets.