IOSCO/MR/38/2022 – Madrid, 30 November 2022
IOSCO today published a report on Investor Behaviour and Investor Education in Times of Turmoil: Recommended Framework for Regulators based on Lessons Learned from the COVID-19 Pandemic, which found that the pandemic did not hinder investor education efforts. In fact, many regulators continued, expanded and/or adapted their investor education activities to support investor protection throughout the pandemic.
Well before COVID-19, regulators were already working to protect investors who had limited investment knowledge and faced an array of complex investment choices, while also addressing behavioural biases that could hurt investors.
However, the report highlights that the pandemic introduced new challenges and exacerbated some existing issues. For example, the COVID-19 period featured high levels of market volatility, an upward trend in self-directed investing, an increase in gamification of investing and growing investor reliance on social media for advice, as well as a surge in frauds and scams in a context of increased retail (and young and demographically diverse) investor participation.
Nevertheless, looking forward, high-quality measures aimed at protecting investors and enhancing investor education continue to be critical. Indeed, some of the changes observed during the pandemic are expected to endure, e.g., it is easier to participate in the financial market today than ever before and retail investors continue trading riskier investments, while regulators report a higher volume of investor claims and complaints.
The report proposes seven sound practices that regulators should consider when designing financial and investor education initiatives to mitigate and address retail investor risks and vulnerabilities during periods of crisis. The report also provides practical examples of the financial education and investor protection initiatives implemented by different jurisdictions from both developed and emerging markets.
Pasquale Munafò, Chairman of the IOSCO Committee on Retail Investors, said “The COVID-19 pandemic has reminded us that investor education pays off. Investor education initiatives need to continue adapting to market developments, changing investors’ needs and characteristics, and evolving risks that challenge investor protection. In a context in which retail participation in the capital markets is easier than before, investor education should explore and find new and proper ways to reach out to current and new investors and help them develop knowledge and sound behaviours under normal and crisis situations.”