Social Media Crypto Advice, Gamification Targeted by Global Standard-Setters at IOSCO

Crypto advice spread via social media and trading apps that mimic mobile games are in the crosshairs of global securities regulators who say they want to respond to the rise in online scams that followed the COVID-19 pandemic.

In a report published Monday following a two-month consultation with members, the International Organization of Securities Commissions (IOSCO) said regulators need tougher tools to deal with a new cohort of younger, non-professional investors.

The IOSCO is an international policy forum for securities regulators whose membership – the U.S. Securities and Exchanges Commission and the U.K. Financial Conduct Authority among them – regulate more than 95% of the globe’s securities markets across 130 jurisdictions.

“Innovative technologies and social media are transforming important aspects of retail investing,” Ashley Alder, the Hong Kong regulator who chairs IOSCO’s board, said in a statement Monday.

Monday’s report makes clear that crypto trading is first among the risky, and often unregulated activities focused on by the group. “Trading on crypto-asset trading platforms often occurs unaccompanied by investor and market protections against fraud, manipulation, insider trading and frontrunning, among other things,” the IOSCO report said, listing some of the financial practices regulators have long regarded as abusive.

“Crypto-assets with high volatility might be unsuitable for most retail consumers,” it added.

Such regulatory attention is nothing new. Lately, jurisdictions including the European Union and India have introduced curbs and warnings for potential investors, and U.S. President Joe Biden recently ordered federal agencies to work together to better protect crypto consumers and safeguard financial stability.

The IOSCO, however, worries that’s not enough because would-be crypto buyers can potentially escape national rules by accessing websites based in other countries. Plenty of people are also getting advice, not from professional intermediaries, but from online contacts on platforms like Reddit – something of which the authorities took a dim view.

“The impact of social media on retail investor behavior and decision-making was perceived negatively by IOSCO members,” said the report. “​The cross-border nature of the offerings require a coordinated regulatory response.”

IOSCO can’t make laws. While the paper is just an attempt to ask the opinions of traders, exchanges and academics, it could end up as guidance for what may be global action.

Jurisdictions including the U.K. and EU have already banned complex retail financial products – contracts for difference and binary options, for example – on the basis that regular investors need to be protected from their own risky behavior.

Now, IOSCO is asking if social media should “be subject to additional regulatory obligations regarding securities trading and/or crypto-asset trading,” and is suggesting platforms like apps using game-style incentives to encourage people to more actively trade could be forbidden altogether.