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

C8 SURVEY ON ANTI- FRAUD MESSAGING

Mary S. Head, Deputy Director Office of Investor Education and Advocacy U.S Securities and Exchange Commission

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 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.

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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 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

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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 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

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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 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

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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 SEC Office of Investor Education and Advocacy

Common characteristics – investment fraud

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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 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

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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 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

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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 SEC Office of Investor Education and Advocacy

Content – Check registration status of investment professionals

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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 SEC Office of Investor Education and Advocacy

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)

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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 SEC Office of Investor Education and Advocacy

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.

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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 SEC Office of Investor Education and Advocacy

Delivery of Anti-fraud Messaging

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Evidence-based multimedia campaign Television/television advertising Social media Hard copy brochures/materials In-person outreach Investor alerts Online/use of websites

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 SEC Office of Investor Education and Advocacy

Example – Quebec AMF

• “Deal or No Deal” television show

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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 SEC Office of Investor Education and Advocacy

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

• rganizations and, in some cases, industry

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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 SEC Office of Investor Education and Advocacy

Case Study – UK FCA ScamSmart

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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 SEC Office of Investor Education and Advocacy

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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 SEC Office of Investor Education and Advocacy

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

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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 SEC Office of Investor Education and Advocacy

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

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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 SEC Office of Investor Education and Advocacy

Delivery - creative and innovative methods

• Search engine optimization
• Mobile apps, video games
• TV shows, soap operas

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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 SEC Office of Investor Education and Advocacy

Characteristics of effective messages

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• 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 SEC Office of Investor Education and Advocacy

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

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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 SEC Office of Investor Education and Advocacy

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

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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 SEC Office of Investor Education and Advocacy

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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 SEC Office of Investor Education and Advocacy

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

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Questions?

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Mary S. Head Email: headm@sec.gov