From influencers to confetti drops, investor protection threats evolve

As investors turn to online influencers and mobile trading apps to guide their investing activity, regulators are grappling with how to ensure they’re adequately protected.

The International Organization of Securities Commissions (IOSCO) published a consultation paper Monday proposing measures for overseeing an increasingly digitized retail investment business.

“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,” the group stated.

At the same time, online trading platforms are using “gamification” techniques that may be designed to exploit investors’ behavioural biases and drive trading activity.

The report offers suggestions for regulators as they develop approaches to oversee and enforce these emerging challenges. It also provides guidance on using technology to detect and investigate possible misconduct.

“The overarching objective is to enhance the protection of retail investors who are the recipients of online offerings and marketing techniques,” IOSCO said, adding that it also seeks to reduce the regulatory arbitrage by increasing cooperation between jurisdictions, and among regulators and law enforcement.

The consultation comes as the Canadian Securities Administrators (CSA) issued a new warning Monday about online investment schemes, particularly scams involving cryptoassets.

“Fraudsters continue to capitalize on market interest in cryptoassets to lure investors into scams, using high-pressure sales tactics and promises of high returns with little or no risk,” the CSA said.

It also reported that regulators have witnessed a rise in “imposter” websites that aim to trick investors by posing as legitimate firms or as regulators, while also touting fake celebrity endorsements.

Online frauds also lure investors by falsely reporting high returns, the CSA said.

“Fraudsters will strongly encourage investors to deposit additional funds using the illusion of rapid gains,” it warned. “Some websites will let investors withdraw a portion of their money to build trust and entice victims to invest more, but any request to withdraw all assets will fail.”

IOSCO is seeking feedback on its proposals by March 17.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.