Regulators hamstrung by pandemic restrictions

The report, released by the International Organisation of Securities Commissions last week, found that investors globally piled money into often new and unfamiliar asset classes to attempt to profit during the volatility of the pandemic, while “predatory firm behaviour” helped drive “retail investor vulnerabilities” and encouraged schemes to take advantage of stimulus measures.

Regulators saw “massive investment flow into alternative asset classes (such as commodities) retail investors might not be familiar with” and “substantial increase in equity trading, on-line day trading and retail OTC products trading”, the report said.

“The current conditions are particularly fertile ground for fraudulent or scam activity by unregulated/fraudulent firms, and there has been an increase in reports of scams and investor loss in this period.”

The requirement to work remotely also raised concerns around monitoring of staff misconduct within financial institutions, with many firms’ usual supervision and complaints handling techniques disrupted.

“The nature of internal surveillance will need to evolve to reflect how firms conduct assurance tasks when video conferencing becomes more and more accepted and some offshore capabilities are no longer as effective or available as during normal times,” the report said.

“The risk of poor complaints handling or claims handling has [also] increased and firms’ ability to deal with customer complaints was impacted.

“Many investor complaints concerned an inability to get in touch with the financial intermediary (e.g. telephone waiting queues for financial difficulty matters). Some investors complained that they could not reach their advisor in a timely manner to give trading instructions.”

Member feedback recorded within the report included concerns from ASIC that cryptocurrency scams were particularly on the rise in Australia, citing an example of scammers using online dating to encourage those they matched with to invest in cryptocurrency.

The Australian regulator also noted a specific focus during the COVID pandemic had been on the wording in advertising used to retail investors, in order to “disrupt and deter the most harmful content arising from communications to consumers about COVID-19 and financial schemes”.

With less “time-critical” onsite supervision of institutions disrupted by the restrictions of the pandemic, regulators globally had prioritised proactive communications to both retail investors and firms around their obligations and developments in the market, as well as proactively monitoring firms for “signals” that may flag potential misconduct.

These included increases in firm revenues from riskier products, increases in misleading disclosures in advertising, and aggressive online marketing targeting vulnerable groups of consumers.