IOSCO consults on addressing risks from digitalisation of retail marketing, distribution

The Board of the International Organisation of Securities Commissions (IOSCO) on Monday published a Consultation Report to assist its members in adapting their regulatory and enforcement approaches to meet the challenges posed by recent technological developments and the rapidly evolving digitalisation and online activities.

Growth in digitalisation and the use of social media is changing the way financial services and products are marketed and distributed. Domestic and cross border online offerings of financial services and products provide new opportunities for firms to reach potential clients and for investors to access a wide range of financial services and products more easily. But developments in digital offerings also give rise to regulatory and investor protection challenges, spanning the whole distribution chain.

Social media increasingly influences the decisions of retail investors, as many share investment tips and seek information from a wide variety of online sources, including influencers, while social media networks analyse the data of the users for digital targeting purposes.

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Similarly, various digital apps and online trading platforms use gamification techniques, which may exploit behavioural biases to influence the retail investors’ trading behaviour.

The Consultation Report is part of IOSCO’s efforts to build trust and confidence in markets that are facing these new and emerging opportunities and risks. The overarching objective is to enhance the protection of retail investors who are the recipients of online offerings and marketing techniques.

The Consultation Report analyses developments in online marketing and distribution of financial services and products to retail investors in IOSCO member jurisdictions, both domestically and on a cross-border basis. It provides a variety of proposed measures that IOSCO encourages its members to consider when determining their policy approach to retail online offerings and marketing. It also proposes useful guidance on enforcement measures for IOSCO members to consider in effectively addressing fraudulent online activity globally by leveraging innovative powers and proactive technology-based detection and investigatory techniques.

The proposed measures could help reduce regulatory and supervisory arbitrage and increase collaboration among IOSCO members and members with criminal authorities, other foreign and domestic authorities and providers of electronic intermediary services, fostering credible deterrence.

The Consultation Report also seeks feedback from market participants on the proposed measures.