The top concerns among both regulators and market participants around the world regarding retail investor protection are industry conduct, conflicts and disclosure, according to a survey of global regulators and industry experts.
A report published today by the research department of the umbrella group of global securities regulators, the International Organization of Securities Commissions (IOSCO) indicates “harmful conduct” is the top investor-protection risk. That risk, it says, damages the markets and undermines investor confidence.
This latest risk-outlook survey found that regulators and industry players place disclosure and suitability issues high on the list of risks to investors. Various emerging issues such as crowdfunding, cryptocurrencies, retail FX trading platforms and fund platforms were also mentioned by respondents, but ranked lower.
Given the concerns about conduct and industry standards, the report notes that respondents said that this is an area that regulators should be continuously reviewing. “The increasingly transactional nature of the capital market requires greater focus on regulating the client/intermediary agency relationship to minimize conflicts of interest, provide oversight of client suitability and appropriateness in sales practices,” the report states.
The survey also found concerns about the possible mis-selling of overly complex or opaque products to investors. “Many financial products and services are designed to be relevant at the point of sale rather than being designed to work with retail investor long term financial planning,” the report says. “This increases the likelihood that products may fail to meet investors’ needs over time. Many respondents believed that a close focus on issues such as suitability, product governance, service provision and cost disclosures could help to minimize these risks.”
The report also notes concern over potential mis-selling to retail investors based on compensation structures that may create incentives for advisors to provide unsuitable investment advice or for manufacturers to offer products that benefit intermediaries over investors.
Looking more broadly, the survey examined risks to financial stability and to the fair, efficient and transparent operation of markets. The report says that, in terms of financial stability, cyber-security threats “are now considered a prominent risk” along with micro-prudential concerns such as corporate governance, financial risk disclosure, shadow-banking activities, harmful conduct and regulatory policy itself.
Market liquidity was cited as the biggest concern for fair and efficient markets, the report says, particularly bond market liquidity.