Private funds pique regulators’ interest

Gangbusters growth in the private finance sector has global regulators’ attention, with the International Organization of Securities Commissions (IOSCO) adding it to the group’s agenda.

The umbrella group of global regulators published its work plan for 2023 and 2024, detailing its priorities for the next couple of years.

A new addition to that extensive agenda includes identifying emerging risks in the world of private finance, namely private equity and private credit funds, which have rapid growth recently.

“The renewed regulatory interest in this area stems from the unprecedented growth of private finance and its increasing role in funding the real economy, combined with emerging concerns around the increasing interconnectivity of the sector with regulated public markets at a time of heightened interest rate risk across the financial markets,” it said in a report setting out its plans.

Among other things, IOSCO said that its work will explore whether behaviour in private finance markets has impacts for, or negative spillovers to, public markets, could harm investors or market integrity, or fuel systemic risk.

An initial report on the sector will be delivered to the IOSCO board in June, with any follow-up work planned for the second half of the year and into 2024.

In the retail investment market, IOSCO said that it’s also undertaking work to combat online fraud and mis-selling, including efforts to address the finfluencer phenomenon; examining market features such as payment for order flow, hidden conflicts of interest and commission structures; and looking at trading in fractional shares.

It will also be providing guidance on international cooperation to prevent unlicensed, offshore providers from targeting retail investors, including work with internet providers to curb this kind of cross-border misconduct.

Other emerging issues on the agenda include work on sustainable finance, and the growing areas of fintech, cryptoassets, and decentralized finance.

“IOSCO will deliver, among other things, on its priorities to address emerging risks arising from sustainable and digital finance,” said Jean-Paul Servais, chair of the IOSCO board, in a release.

“IOSCO will also move at pace with its policy-focused work on crypto-asset markets and activities,” he added.

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.