IOSCO's Plans to Promote Investor Education

Introduction

More than 100 jurisdictions are celebrating World Investor Week (WIW) from 2-8 October, an initiative launched by the members of IOSCO to support investor protection through education.

The fact that jurisdictions from developed and emerging markets are participating in the WIW campaign is a clear indication that investor education is a priority all around the world, regardless of the level of development of the capital markets.

Financial education as a tool to promote investor protection

Retail investors are exposed to different opportunities and risks in their local markets. However, a variety of common issues across jurisdictions are impacting retail investors in different ways, such as the emergence of sustainable finance products, crypto assets, finfluencers, or new forms of fraud and scams in the context of increasing digitalisation.

In this regard, securities regulators, the financial industry and other stakeholders are taking different measures to continue enhancing investor protection. Financial education is one such initiative, which helps individuals to develop the competency to understand basic financial concepts, analyse risk/reward trade-offs, and set financial goals.

Of course, financial education is not a substitute for a proper regulatory framework or effective compliance practices. However, financial education has an important role to play in helping individuals to make better financial decisions, to be aware of the inherent risks in the financial markets, and to behave in a manner that contributes to the individual’s financial objectives.

The emergence of new and innovative financial products also requires financial education by market participants. For instance, regarding sustainable finance products, the IOSCO Committee 8[1] has recently highlighted that financial education on sustainability-related issues could be made more effective by involving other audiences (such as a regulator’s staff, financial advisers, or the staff of other stakeholders). IOSCO has also pointed out that financial education (which would include education for industry participants) may address the professional and licensing obligations of industry participants, including financial advisers, to ensure that industry participants have the necessary knowledge and skills to provide advice and services relating to sustainable finance. Overall, this concerted effort will help address the risk of greenwashing.

Supporting financial education worldwide

IOSCO recognises the importance of securities regulators undertaking investor education through its Objectives and Principles of Securities Regulation, which states that ‘regulators should play an active role in the education of investors and other market participants’.[2]

There is a legitimate and substantial role for IOSCO members (and others, such as firms and non-governmental organisations) to play in facilitating the acquisition of financial comprehension skills by retail investors through investor education.

To support this overarching objective, IOSCO has been conducting different initiatives on retail investor education and financial literacy. This includes, for example, the “Strategic Framework for Investor Education and Financial Literacy”[3] and other reports[4], keeping the pace with the main developments[5] and emerging issues[6] stemming from the retail investment markets and trends.[7] Also, the application of behavioural insights is only one of the many fields that IOSCO has explored over the years, usually in cooperation with other relevant standard setters (first of all, the OECD/INFE)[8].

It is important to say that investor education and financial literacy programs are not based on a universal model, but they are designed for the specific needs of the target identified or the circumstances in each jurisdiction.

WIW is an important flagship initiative for IOSCO, which was launched in 2017.[9] The WIW is a week-long, global campaign promoted by IOSCO, held during the first week of October every year, to raise awareness of the importance of investor education and protection and to highlight the various initiatives of securities regulators in these two critical areas.

This year, the campaign is focusing on three main themes: Investor Resilience, Crypto Assets and Sustainable Finance, which the IOSCO board has identified as particularly relevant given current and expected global market conditions. Other themes include Fraud and Scam Prevention, the Basics of Investing, Technology and Digital Finance.

We welcome the participation and the continuous support of the WFE and its members in the WIW campaign.

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[1] The “IOSCO C8 on Retail Investors” (‘IOSCO C8’ or ‘C8’) was established in 2013 with a primary mandate to conduct IOSCO’s work on retail investor education and financial literacy and a secondary mandate to advise the IOSCO Board on emerging retail investor matters and conduct investor protection policy work as directed by the IOSCO board. The C8 is currently composed of 37 members and is headed by Pasquale Munafò (Consob, Italy) as Chair and Camille Beaudoin (AMF, Quebec) as Vice-Chair. See https://www.iosco.org/about/?subsection=display_committee&cmtid=20.

[2] Principle 3, Key Issue 6, “Objectives and Principles of Securities Regulation” (May 2017), https://www.iosco.org/library/pubdocs/pdf/IOSCOPD561.pdf

[3] The “IOSCO C8 on Retail Investors” (‘IOSCO C8’ or ‘C8’) was established in 2013 with a primary mandate to conduct IOSCO’s work on retail investor education and financial literacy and a secondary mandate to advise the IOSCO Board on emerging retail investor matters and conduct investor protection policy work as directed by the IOSCO board. The C8 is currently composed of 37 members and is headed by Pasquale Munafò (Consob, Italy) as Chair and Camille Beaudoin (AMF, Quebec) as Vice-Chair. See https://www.iosco.org/about/?subsection=display_committee&cmtid=20.

[3] Principle 3, Key Issue 6, “Objectives and Principles of Securities Regulation” (May 2017), https://www.iosco.org/library/pubdocs/pdf/IOSCOPD561.pdf https://www.iosco.org/library/pubdocs/pdf/IOSCOPD462.pdf

[4] Here is a not-exhaustive list of reports edited by the IOSCO C8: “Sound Practices for Investment Risk Education” (Sept. 2015) https://www.iosco.org/library/pubdocs/pdf/IOSCOPD505.pdf; “Senior Investor Vulnerability” (March 2018) https://www.iosco.org/library/pubdocs/pdf/IOSCOPD595.pdf; “Core Competencies Framework on Financial Literacy for Investors” (jointly with OECD/INFE) (Sept. 2019) https://www.iosco.org/library/pubdocs/pdf/IOSCOPD639.pdf; “Complaint Handling and Redress System for Retail Investors” (Jan. 2021) https://www.iosco.org/library/pubdocs/pdf/IOSCOPD670.pdf.

[5] “Retail Investor Education in the Context of Sustainable Finance Markets and Products” (Aug. 2022) https://www.iosco.org/library/pubdocs/pdf/IOSCOPD711.pdf.

[6] “Investor Education on Crypto-Assets” (Dec 2020) https://www.iosco.org/library/pubdocs/pdf/IOSCOPD668.pdf

[7] “Investor Behaviour and Investor Education in Times of Turmoil: Recommended Framework for Regulators based on Lessons Learned from the COVID-19 Pandemic” (Nov. 2022) https://www.iosco.org/library/pubdocs/pdf/IOSCOPD724.pdf.

[8] “The Application of Behavioural Insights to Financial Literacy and Investor Education Programmes and Initiatives” (jointly with OECD/INFE) (May 2018) http://www.iosco.org/library/pubdocs/pdf/IOSCOPD603.pdf; “The Application of Behavioural Insights to Retail Investor Protection” (April 2019) https://www.iosco.org/library/pubdocs/pdf/IOSCOPD626.pdf.

[9] The worldwide campaign is coordinated by an internal working group within the C8, which is currently headed by CVM Brazil.