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IOSCO publishes final measures for regulators to consider in addressing emerging retail market conduct issues

The Board of the International Organization of Securities Commissions (IOSCO) today published its Report on Retail Market Conduct, in response to the evolving retail trading landscape, influenced by changing macro conditions, demographic trends, and technological developments.

IOSCO Board Chair Jean-Paul Servais said: “Safeguarding the interests of retail investors is a core objective for IOSCO and a pre-requisite to help sustain retail investors’ interest and trust in capital markets. As a result of their increasing share in the overall trading volume, the retail market segment is increasingly influencing price formation and market trends. This in turn can make retail investors more vulnerable to misconduct by wrongdoers via a wide range of sophisticated tactics to exploit vulnerabilities. In today’s digital world, fraud patterns are increasingly cross-border and have no jurisdictional boundaries. IOSCO’s Retail Market Conduct Report is an overarching and global response to evolving misconduct trends and fraud patterns. As the IOSCO Board Chair, I would recommend the Toolkit suggested in the Report to regulators and supervisors around the world. IOSCO will continue to work on these issues.”

The Chairperson of the Retail Market Conduct Task Force, Derville Rowland from the Central Bank of Ireland, said: “Technological developments are permanently changing the way in which retail consumers interact with financial services and products. As digitalization enables retail investors to invest more easily via apps and online trading platforms, various external factors, including social media and cross-border offerings of complex products, including crypto assets, increasingly influence retail investor decision making. This can lead retail investors to products that might not be safe or suitable. In such an environment, regulators face novel conduct challenges and new forms of financial consumer protection issues, which traditional regulatory tools may not suffice to address. While it’s important that the potential benefits of innovation can be realized, it’s also critical that the risks are effectively managed. To deal with these issues, IOSCO´s Retail Market Conduct Report provides timely, practical and innovative guidance to regulators in coping with such challenges.”

The Report highlights a wide range of retail trends and sources of potential retail investor harm in an increasingly online environment, where social media is now a major source of information. Increasing digitalization of financial services and greater use of online distribution methods provide fraudsters with easier and cheaper ways of spreading false communications and information to a wider target audience. More and more, digital promotions and online marketing are used to facilitate fraudulent activities. Crypto-asset scams and greenwashing are two important examples of misconduct arising from global trends and technological developments.

To respond to retail market conduct challenges, IOSCO notes that regulators need to address retail investor harm at its source. Regulators can employ technological tools to eliminate detrimental online marketing channels, identify misconduct early on and intervene rapidly.

IOSCO also highlights the persistent challenges regarding supervision and enforcement of cross border misconduct and the importance of deepening co-operation between jurisdictions in combatting financial fraud on a global scale.

The toolkit outlined in the Final Report is a collection of adaptable measures for regulators to consider when dealing with retail market conduct issues. It includes various innovative approaches under five overarching categories:

  • Heightening regulators’ digital presence and online strategy to proactively address retail investor harm;
  • Honing approaches to better identify and mitigate misconduct;
  • Enhancing cross-border and domestic supervisory and enforcement cooperation frameworks, both bilaterally and multilaterally;
  • Addressing retail investor harm that stems from crypto-assets; and
  • Implementing new regulatory approaches against retail misconduct.

IOSCO’s Final Report, prepared by its Board-level Retail Market Conduct Task Force, which is led by the Australian Securities and Investments Commission and the Central Bank of Ireland, is a follow-up to the IOSCO Report on retail market conduct implications of the COVID-19 pandemic and a Consultation Report, published respectively in December 2020 and March 2022.

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