C8 SURVEY ON ANTI- FRAUD MESSAGING 2 SEC Office of Investor - PowerPoint PPT Presentation

Mary S. Head, Deputy Director Office of Investor Education and Advocacy U.S Securities and Exchange Commission C8 SURVEY ON ANTI- FRAUD MESSAGING

2 SEC Office of Investor Education and Advocacy Disclaimer The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the speaker and do not necessarily reflect the views of the Commission or the Commission staff. U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

3 SEC Office of Investor Education and Advocacy IOSCO Committee 8 (Retail Investors)  C8 formed in June 2013 – 30 securities regulators from around the world  C8’s initial workstream: Survey on Anti-fraud Messaging – Losses from investment fraud are projected at $50 billion per year (probably underreported) in the US alone. Losses cause social/psychological as well as financial harm.  Purpose of project is to share information about C8 members’ investor education efforts in the area – Identify methods to increase the impact and effectiveness of anti-fraud messaging strategies U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

4 SEC Office of Investor Education and Advocacy Fact-finding Survey of C8 Members  Types of investment fraud  Common characteristics – investment fraud  Common characteristics – victims  Content of messaging  Variety of communication channels used  Evaluation U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

5 SEC Office of Investor Education and Advocacy Types of Investment Fraud  Strikingly similar across jurisdictions – Ponzi schemes – Pyramid schemes – Advance fee fraud – Pump-and-dump schemes – Affinity fraud – High-yield investment schemes  Common characteristics – Unsolicited phone calls or emails using high pressure sales tactics – Unregistered salespeople and products – Unrealistically high promised or “guaranteed” rates of return U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

6 SEC Office of Investor Education and Advocacy Common characteristics – investment fraud U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

7 SEC Office of Investor Education and Advocacy Common characteristics – victims  Older investors and members of affinity groups (based on religion or ethnicity) are especially vulnerable in most jurisdictions.  Victims of investment fraud tend to be male, middle-aged, and well-educated.  See research from: – FINRA/NASD and Wise Senior Services research – Australian Crime Commission – United Kingdom Financial Conduct Authority – Japan Securities Dealers Association U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

8 SEC Office of Investor Education and Advocacy Outsmarting Investment Fraud  Difficult to anticipate fraudulent schemes  One proactive way of educating investors about protecting themselves from fraud is to raise awareness of persuasion tactics (red flags of fraud)  FINRA’s Investor Education Foundation program on Outsmarting Investment Fraud can easily be adapted to the needs and demographics of any jurisdiction U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

9 SEC Office of Investor Education and Advocacy Content – Check registration status of investment professionals 2009 National Financial Capability Study (United States) Have you ever checked with a state or federal regulator regarding the background, registration, or license of a financial professional? Yes (15%) No (85%) U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

1 SEC Office of Investor Education and Advocacy 0 Content – Check registration status of investment products  Checking registration of an investment product is difficult; not as important as checking registration of person offering the product.  Example (Netherlands) U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

1 SEC Office of Investor Education and Advocacy 1 Content – Other anti-fraud messages • Be suspicious of unsolicited phone calls and emails • Be aware of persuasion tactics • Be suspicious of promised high rates of return • Verify the registration status of a salesperson and his/her firm before investing • Deal only with registered or licensed salespeople and financial firms • If it sounds too good to be true, it probably is. U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

1 SEC Office of Investor Education and Advocacy 2 Delivery of Anti-fraud Messaging Online/use of websites Investor alerts In-person outreach Hard copy brochures/materials Social media Television/television advertising Evidence-based multimedia campaign U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

1 SEC Office of Investor Education and Advocacy 3 Example – Quebec AMF  “Deal or No Deal” television show U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

1 SEC Office of Investor Education and Advocacy 4 Delivery – use communications channels and partnerships  Communications channels – Mix of print, online, and social media to reach all investor demographics  Partnerships – With other regulators, non-profit consumer organizations and, in some cases, industry U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

1 SEC Office of Investor Education and Advocacy 5 Case Study – UK FCA ScamSmart U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

1 SEC Office of Investor Education and Advocacy 6 U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

1 SEC Office of Investor Education and Advocacy 7 Case Study – US CFTC SmartCheck  Majority of fraud schemes involve unregistered financial professionals   Strong emphasis on tools for checking the background of financial professionals  Message testing findings – Embrace the positive – Tie registration and disciplinary history to past performance – Demonstrate the benefits of reporting fraud U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

1 SEC Office of Investor Education and Advocacy 8 CASE STUDY – CFTC SmartCheck  Majority of fraud schemes involve unregistered financial professionals   Strong emphasis on tools for checking the background of financial professionals  Message testing findings – Embrace the positive – Tie registration and disciplinary history to past performance – Demonstrate the benefits of reporting fraud U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

1 SEC Office of Investor Education and Advocacy 9 Delivery - creative and innovative methods  Search engine optimization  Mobile apps, video games  TV shows, soap operas U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

2 SEC Office of Investor Education and Advocacy 0 Characteristics of effective messages  Two most important messages are: – awareness of persuasion tactics and – importance of dealing with registered persons/firms  Personal stories and victim testimony in videos can help to counteract investors’ belief that they are immune from fraud  Positive messages are more effective than negative ones  Simple concepts, expressed in clear, plain language, repeated frequently, have the most potential to be effective. U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

2 SEC Office of Investor Education and Advocacy 1 Characteristics of effective delivery methods  Online communication is most widely used channel  TV advertising (infomercials), especially if – Communicated in plain language; – Delivered at the appropriate time of day; or – Delivered by a popular spokesperson.  In-person events U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

2 SEC Office of Investor Education and Advocacy 2 Barriers to effective fraud prevention  Agility of fraudsters’ techniques  Investors’ belief that they are immune from being scammed  Low level of reporting investment fraud  Scams without borders U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

2 SEC Office of Investor Education and Advocacy 3 Evaluation of Investor Education Efforts Relating to Anti-fraud Messaging No current or planned evaluation (54%) Future plans for evaluation (15%) Some limited evaluation measures (31%) U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

2 SEC Office of Investor Education and Advocacy 4 Lessons learned  Fighting investment fraud is a long-term proposition; no silver bullet even for the most resourced jurisdictions; incremental change is good!  Feel free to use content from Investor.gov on your website; sign up for SEC alerts and bulletins  Learn from the experience of other jurisdictions; see how much is applicable to your market/demographics  OK to send anti-fraud messages that are applicable to all demographics; develop partnerships to spread anti-fraud messages U . S . S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

2 5 Questions? Mary S. Head Email: headm@sec.gov