FR15/22 Investor Behaviour and Investor Education in Times of Turmoil: Recommended Framework for Regulators based on Lessons Learned from the COVID-19 Pandemic

InvestorBehaviourandInvestorEducationinTimesofTurmoil:RecommendedFrameworkforRegulatorsbasedonLessonsLearnedfromtheCOVID-19Pandemic FinalReport TheBoard OFTHE INTERNATIONALORGANIZATIONOFSECURITIESCOMMISSIONS NOVEMBER2022 FR/15/22 Copiesofpublicationsareavailablefrom: TheInternationalOrganizationofSecuritiesCommissionswebsitewww.iosco.org ©InternationalOrganizationofSecuritiesCommissions2022.Allrightsreserved.Briefexcerptsmaybereproducedortranslatedprovidedthesourceisstated. Contents ExecutiveSummary1 1.IntroductionandBackground3 2.SurveyFindings7 3.EducationalProgrammesduringCOVID-199 4.InvestorProtectionMeasures12 5.BeyondthePandemic15 6.RecommendedFrameworkforRegulators.SoundPracticesandMeasures:InvestorEducationandInvestorProtectionduringPeriodsofCrisis16 AppendixA—LiteratureReview22 AppendixB-Committee8Survey26 AppendixC–MembersofCommitteeonRetailInvestors(Committee8)29 ExecutiveSummary Majorevents,suchastheCOVID-19pandemic,canmagnifyoracceleratechangesinretailinvestorbehaviour,informationsources,investmentalternatives,andtradingtechnologies.Whilesomechangescanbebeneficialforretailinvestors,otherscannegativelyaffectinvestorprotectionandconfidenceinthemarkets,includingaroundissuessuchasfinancialwell-beingandinvestmentfraud.TheCOVID-19pandemichasledtoworldwideconcernsintheseareas. In2021,theIOSCOBoardapprovedaprojectspecificationentitledTheImpactofCOVID-19onInvestorBehaviourandInvestorEducation,aimedatassistingIOSCOmembersinbetterunderstandingretailinvestortrends,vulnerabilities,andbehavioursduringperiodsofcrisis.Theprojectalsosoughttoinformmembersaboutinvestorprotectionandeducationalmeasures,includingfraudprevention. TheprojectfollowedthelinesoftheIOSCO2021-2022workprogram,astheIOSCOBoardidentifiedrisksexacerbatedbytheCOVID-19pandemicasoneoftwonewprioritiesandexpresseditssupportforinvestoreducationasacriticalpillarofinvestorprotection.1Theprojectwasalsoinformedbythereporton“InitialFindingsandObservationsAbouttheImpactofCOVID-19”thatwaspreparedbytheRetailMarketConductTaskForce(RMCTF)inDecember2020.2Accordingtotheprojectspecification,thefinaldeliverablewouldbeareportthatwouldidentifysoundinvestorprotectionandeducationpracticesforsecuritiesregulatorstoconsiderinacrisissituation.Inthisvein,thisreportprovides: 1)AliteraturereviewconductedaswellasinsightsfromIOSCOmembers(notablyobtainedduringanIOSCO-WorldInvestorWeek2021webinar)thatfoundevidenceofworldwideshiftsintradingpatternsanddecisions,socialmediause,marketparticipation,andvolatilityduringCOVID-19. 2)Theresultsofasurveyconductedamongmemberregulatorsworkingonthedevelopmentofthisframework,3designedaftertheanalysisoftheliteraturereview,onthetypesofmeasuresimplementedduringthepandemicthathelpedprotectretailinvestors(directlyorindirectly).FindingsfromthesurveystronglysuggestthatCOVID-19ledtochangesininvestorbehaviour,withacorrespondinguptickinpotentialinvestorvulnerabilities. 3)Informationonthemeasuresregulatorsandinvestoreducatorstooktoincreaseretailinvestorprotectionduringperiodsofextrememarketvolatilityandeconomicturmoil. 4)Soundpracticesforretailinvestorprotectionandinvestoreducationbaseduponresearchcarriedoutduringthepandemic. Investoreducationandregulatorymeasuresplayanimportantroleinsecuritiesregulators’effortstoprotectinvestorsandpreservemarketconfidenceintimesofcrisis.Investoreducation 1SeeIOSCOBoardPriorities-WorkProgram2021-2022,26February2021,page2,availableathttps://www.iosco.org/library/pubdocs/pdf/IOSCOPD673.pdf 2InitialFindingsandObservationsAbouttheImpactofCOVID-19onRetailMarketConduct,22December2020,availableathttps://www.iosco.org/library/pubdocs/pdf/IOSCOPD669.pdf 3SeethelistofmemberregulatorsinAppendixC. isonetoolamongseveralothersavailabletoregulators.Investoreducationisnotmeanttoreplaceorsubstituteproperregulation,soundoversight,noreffectiveenforcementinrelationtoinvestorprotection.Rather,investoreducationinteractswithothertoolsavailabletoregulatorsandcanserveasacomplementtothepolicies,oversight,andenforcementactionsthatregulatorsundertaketoaccomplishtheirmandates,includinginvestorprotection.4 Inthiscontext,IOSCOmembers,asobservedthroughthemeasurestakenbyC8members,havetakendifferentactionstoprotectinvestorsandenhanceinvestoreducationduringtheCOVID-19pandemic.Mostregulatorsintroducedormodifiededucationalprogrammesand/orinvestorprotectionmeasurestoaidinvestors.However,findingssuggestinmanycasestheregulatorshaveyettoempiricallyevaluatethemeasurestheyintroduced.Empiricalevaluationsarecriticaltounderstandtheimpactofeducationalmeasuresandimproveexpectedoutcomes.Itshouldbenotedthatevaluationsrequireadditionalworkandresourcesfromregulatorsandtheirfinancialeducationdepartments.Ittakestimetofindfundingforresearch,developtheresearchdesign,collect,andanalyzethedata,andcomeupwiththerespectiveconclusions,soitispossiblethatempiricalevaluationswillbeconductedinthefuture.Hence,whiletheassessmentoftheoutcomesisnotcoveredinthisreport,itisacknowledgedthatempiricalevaluationsmayhavepotentialbenefitstocontinueimprovingboththemeasuresandtheexpectedoutco