By Anne Sherry, J.D.
IOSCO is requesting feedback on a consultation report that addresses growth in digitalization and the use of social media to market and distribute financial services and products. The report analyzes these developments and proposes tools relating to firm-level rules, responsibilities, surveillance and supervision, staff qualification, compliance, and clarity around internet domains. Comments are due March 17. Additionally, IOSCO published a set of good practices related to the use of global supervisory colleges in securities markets.
Consultation report. According to the consultation report, digitalization and cross-border offerings, while providing new opportunities for both firms and investors, also carry risks for investors and challenges for regulators. In retail over-the-counter leveraged products, firms have used social media, online marketing, and internet-based trading platforms to reach customers. But while improving investors’ access, digitalization can enable bad actors to hide their identities, target potential victims, and exploit jurisdictional differences. IOSCO is also concerned about the use of gamification to influence investors’ trading behavior.
To help member regulators address these concerns, the report includes two “toolkits.” The proposed policy toolkits encourage members to institute firm-level rules for online marketing and distribution, along with rules for online onboarding. Members should require, subject to applicable laws and regulations, that management assume responsibility for the accuracy of information provided to potential investors on behalf of the firm. IOSCO members themselves should consider whether they have the capacity to surveil and supervise online activities, including on social media. Finally, members should consider requiring firms to assess qualifications for digital marketing staff; do due diligence into third-country regulations in the case of cross-border activity; and adopt policies and procedures for disclosure of the underlying entity offering the product.
The proposed enforcement toolkit includes recommendations on proactive, technology-based detection and investigatory techniques for illegal digital conduct. IOSCO members could consider seeking additional powers to curb online misconduct and increasing cooperation with international counterparts and with criminal authorities. Finally, the toolkit suggests initiatives to foster collaboration with the electronic intermediaries themselves, as well as to address supervisory and regulatory arbitrage.
Good practices. IOSCO also published a set of good practices generated from its report Lessons Learned from the Use of Global Supervisory Colleges. The good practices encourage the use of supervisory colleges to share information and solutions during a crisis. They cover matters such as general purpose, membership, governance, multilateral confidentiality arrangements and the cross-border operations of supervisory colleges.
The report also calls for the use of “core-extended” structures that would allow all relevant authorities, including in emerging jurisdictions, to exchange information about a supervised entity. It highlights market sectors where the use of supervisory colleges could be expanded, taking into account interconnectedness across jurisdictions and emerging areas where supervisory knowledge is not yet fully developed. IOSCO members have suggested using supervisory colleges for market intermediaries, financial benchmarks administrators, crypto-asset platforms, and asset management.