IOSCO Releases Final Report on Investor Education in Crypto-Assets

The International Organization of Securities Commissions (IOSCO) has released its Final Report on Investor Education in Crypto-Assets, marking a significant advancement in global efforts to protect retail investors. This initiative aligns with IOSCO’s broader strategy to regulate the rapidly evolving fintech and crypto sectors through its Fintech Task Force (FTF). The report is a follow-up to IOSCO’s 2020 report on the same topic, providing updated information that is crucial for shaping educational initiatives in the face of a changing crypto landscape.

Strengthening Investor Education Amid a Changing Landscape

Crypto-assets have been a key priority for IOSCO, and in 2022, the organization established the Fintech Task Force (FTF) to spearhead its regulatory work on fintech and crypto-assets. IOSCO’s Committee on Retail Investors (C8) conducted a survey in late 2023 to gather updated data on retail investor behavior, demographics, and experiences with crypto-assets. This survey, alongside discussions among C8 members, has informed the updated report.

The report highlights new and emerging risks for retail investors, who are increasingly engaging with crypto-assets for various reasons, including the fear of missing out (FOMO), the low cost of entry, and advice from friends or social media. These motivations, along with evolving market trends, make continued investor education crucial to safeguarding retail investors from the inherent risks of digital asset investments.

Key Findings and Educational Tools

IOSCO’s 2023 report focuses on three key objectives, including: Enhancing investor protection; maintaining fair, efficient, and transparent markets; and addressing systemic risk

In light of these objectives, the report presents updated educational strategies that regulators across IOSCO member jurisdictions can adopt. These strategies are based on measures successfully implemented in countries like the United States, France, Canada, Australia, Italy, the United Kingdom, Malaysia, and China.

Among the key educational messages highlighted are:

• Investments in crypto-assets can be exceptionally risky and often lack the investor protections found in traditional financial markets.
• Crypto-assets are volatile, and fraudsters continue to exploit their rising popularity, leading to substantial financial losses for unsuspecting retail investors.
• Investors should be skeptical of advice from social media, particularly “finfluencers” who may promote high-risk investments.
• Compliance with local regulatory frameworks is crucial, as investments in compliance provide essential investor protections.

Regulatory Landscape and Implementation

As part of IOSCO’s broader fintech regulatory agenda, the FTF published two major reports: the Policy Recommendations for Crypto and Digital Asset Markets Final Report; and the Policy Recommendations for Decentralized Finance (DeFi) Final Report. Both reports are instrumental in IOSCO’s comprehensive regulatory approach. To ensure these recommendations are implemented globally, IOSCO’s Implementation Working Group (IWG) will coordinate adoption across its member jurisdictions over the next three years.

The report also provides insights into regulatory changes and enforcement activities by various IOSCO members since 2020, reflecting the evolving nature of crypto-asset markets. For instance, C8 members have noted a rise in relationship investment scams and emphasized the need for continued communication with retail investors, particularly via social media platforms.

Global Push for Informed Decision-Making

IOSCO encourages its members to adopt the educational tools and strategies outlined in the report, tailored to their specific regulatory frameworks. For instance, the report showcases examples of effective investor education campaigns in jurisdictions like the European Union, Hong Kong, Singapore, Thailand, and Malaysia.

The overarching goal is to ensure that retail investors are equipped with sufficient information to make well-informed decisions when navigating the complex and often risky world of crypto-assets. Educational materials such as online courses, brochures, and awareness campaigns have already proven effective in some jurisdictions, and IOSCO members are encouraged to adopt similar initiatives.

For more information, you can access the full report on Investor Education in Crypto-Assets here.