Covid-19 fuelled predatory financial scams globally – report

Spike in trading by small-time investors heightened risk

The report calls for regulators to help in reducing risks facing retail investors. Photograph: iStock

The report calls for regulators to help in reducing risks facing retail investors. Photograph: iStock

 

The Covid-19 pandemic fuelled a spike in predatory financial scams and unlicensed advice around the world, according to a report for an organisation of regulators co-chaired by the Central Bank of Ireland.

The report for the International Organisation of Securities Commission’s (IOSCO) Retail Market Conduct Task Force, co-chaired by the Central Bank in Dublin and the Australian Securities & Investments Commission found that the period of financial market stress at the onset of the crisis earlier this year as well as a spike in trading by small-time investors during lockdown heightened the risks.

“Initial observations and findings demonstrate a spectrum of retail misconduct spanning the more egregious examples of fraudulent or predatory practices by unlicensed operators targeting retail investors to those characterised as inadvertent misconduct by regulated firms or other harmful conduct by regulated or unregulated firms,” the report said.

“What is clear as the pandemic continues to unfold is that there are challenges for retail investors in navigating volatile markets amidst rapidly changing information (or misinformation), and possibly limited resources or accessibility to suitable financial advice, particularly where excessive risk-taking or hardship issues are involved.”

Regulated firms

Regulated financial firms, meanwhile, face challenges in effectively and continuously assessing the changing environment for investors and “support informed decision-making by retail investors”.

The report calls for regulators to help in reducing risks facing retail investors by proactively monitoring offerings targeting vulnerable investors, taking effective enforcement action and working closely with peers in different jurisdictions.

“A hugely positive and important aspect of the challenges posed by Covid has been the degree to which regulators globally have worked together to identify and mitigate risks,” said Derville Rowland, director general of financial conduct at the Central Bank. “This report forms another key element of that work - helping regulators to share best practices and measures and tools used to combat misconduct.”