Rio de Janeiro - 07/12/2015 SECURITIES REGULATION OBJECTIVES* AND - - PowerPoint PPT Presentation
Behaviourally Informed Policies CVM Financial Education and Investor Behavior Conference Rio de Janeiro - 07/12/2015 SECURITIES REGULATION OBJECTIVES* AND INVESTOR PROTECTION** Ensuring that The markets are reduction fair, efficient The
The reduction
risk Ensuring that markets are fair, efficient and transparent The protection of investors
Regulation Supervision Education**
*Objectives and Principles of Securities Regulation. IOSCO. **Investor Education in Canada: Towards A Better Framework. Caroline Cakebread.
SECURITIES REGULATION OBJECTIVES* AND INVESTOR PROTECTION**
Behaviourally Informed Public Policies and Interventions
LEGAL MANDATE Investor protection Protect investors against (i) irregular issuance of securities, (ii) illegal acts of administrators, (iii) insider traders Prevent or discourage modalities of fraud or manipulation Ensure fair trade practices and a proper disclosure Supervision and enforcement Permanent oversight of activities and services in the market place Investigative proceedings and imposition of penalties Promote market development Balance between market initiatives and investor protection Foster the formation of savings through securities markets
A consistent financial education policy
INVESTOR AND FINANCIAL EDUCATION Objectives: Raise population awareness about long-term savings and investment
Sustainable expansion of market boundaries Dissemination of a long-term investment culture Point of attention: Increase of life expectancy requires profound changes in population habits concerning savings and investments Lack of a long-term savings culture may trigger a high social risk Need to properly comprehend investors’ attitudes and behaviours Key decision following the 1st edition of Annual International Conference of Investor Education and Financial Behaviour, in Rio (2013) Set up of a Behavioural Sciences Advisory Panel – NEC
Antecedents> Schools FE Evaluation Dimensions: Cognitive, Attitudinal and Behavioral
Reflexive Autonomy
Emotional Autonomy
and to follow through on these decisions with actions Functional Autonomy
*APPLICATION OF THE CAED AUTONOMY SCALE TO ASSESS THE IMPACT OF FINANCIAL EDUCATION . Micarello, Hilda; Melo, Manuel Palacios, Burgos, Marcelo B.
future financial attitudes and behaviors (intention to save) > 2 scales:
**NOOM, M. J., Dekovic, M., y Meeus, W. (2001). Conceptual analysis and Measurement of Adolescent Autonomy. Journal of Youth and Adolescence, 30, 5, 577-595.
*Predicting and Changing Behavior – The reasoned action approach. Fishbein, M.; Ajzen, I. (2010)
Behavioral Questionnaire (cont.):
TPB was introduced in 1967 (Theory of Reasoned Behavior - TRB), motivated by the fact the then existing attitude theories could not predict behavior . Objective: PREDICT and UNDERSTAND human behavior . Subject areas: weight loss, alcoholism, consumer behavior, voting, financial services etc.
…” Attitudes towards future behavior
habit of saving…” Subjective norms and expectations
Perception of controlling one`s behavior Intention Behavior
Impact Evaluation Dimensions: Cognitive, Attitudinal and Behavioral
The impact of the pilot project on student’s financial
Significant increases on financial autonomy scores and
Students improved their savings and spending behaviors
The FE in schools program has the potential to increase
RESULTS
BEHAVIOURAL SCIENCES ADVISORY PANEL - NEC Interdisciplinary, independent advisory committee created in early 2014 Economic, social, neuroscience, cognitive psychology experts (professors and senior researchers), working on a voluntary basis NEC aims to help CVM to apply behavioural economic insights to improve the effectiveness of educational projects and public policies Main attributions: Review and endorse CVM projects Advise CVM on scientific matters Provide guidance to the CVM’s Office of Investor Protection and Assistance (SOI) In order to support NEC activities, the Board of Commissioners set up a Behavioural Sciences Unit (COP) at the Office of Investor Protection and Assistance.
INVESTOR PROTECTION AND EDUCATION
SOI
Office of Investor Protection and Assistance
GOIs
Investor Assistance Units Provide guidance to investors and answer to consultations and complaints
COE
Financial Education Unit * Implemented in 2014
COP
Behavioural Sciences Unit Financial education projects and programs
SOI – Superintendência de Proteção e Orientação aos Investidores GOI – Gerência de Orientação aos Investidores COE – Coordenação de Educação Financeira COP – Coordenação de Estudos Comportamentais e Pesquisa
Educational Center**
** To be implemented in 2016
BEHAVIOURAL SCIENCES UNIT - COP
Demand Planning Execution Use of findings Publication / Disclosure
Definition of scope, objectives, target audience Draft of project, with technical support of NEC, if necessary Mostly through agreements, partnerships Educational programs Rule-making (i.e., crowdfunding research) Annual International Conference Blog (Penso, Logo Invisto?) Facebook profile Budget constraint Optimization of available resources, tools and data Simple, bold and efficient measures
Evolving into a full scale “Nudge Unit”, using cognitive insights on behalf of investors Objectives: Comprehend investors’ decision-making process Develop methodologies and proceedings to estimulate formation of savings and its investment in securities Evaluate the impact of educational, guidance and assistance actions Subsidize financial education programs and rule-making process Methodologies being considered: Investors surveys Small-scale tests Randomized controlled trials Adaptation of successful initiatives in other markets to Brazilian market characteristics Use of behavioural insights BEHAVIOURAL SCIENCES UNIT - COP
OBJECTIVES
Evaluate possible changes in the risk profile and perception of investment decisions of the group of university professors who attended the TOP Programme Assess the efficacy of TOP Programme in the creation of knowledge Observe eventual relations between personality traits and risk/investment profiles
About TOP Programme:
Qualification program (in its 16th edition – since 2006) focused on university professors who teach financial market-related subjects Taught by representatives from the CVM, ANBIMA, BM&FBOVESPA, CETIP and other SRO´s embracing topics like:
Capital Markets regulation, stock market functioning, clearing, listing segments, market intermediaries, IPO’s, follow-ons, tender offers/takeovers, stock analysis, governance, derivatives, fixed- income instruments, mutual funds etc.
METHODOLOGY
Quantitative survey with the 39 university professors who attended the last TOP Programme edition, before, during and after the Five-Day course (July, 2015) Target audience of knowledge multipliers Study carried out at very low cost, using an existing CVM educational program
Participants were asked, before and after the Programme, about their impressions on each investment product (i.e., safety, risk-return, liquidity) Main perception indicates that there was a preference for saving accounts due to (i) low-risk, (ii) simplicity to understand and to invest in, and (iii) low initial investment amount However, the Programme achieved some positive results, clarifying aspects of securities:
15 22 Before After
Consider stocks as a highly liquid investment
12 18 Before After Consider fixed income mutual funds as highly liquid investments 3 10 Before After
Consider REIT’s as easily understood investments
The Programme improved the overall self-reported knowledge of investment products, especially securities Overall averages Before = 3,37 After = 3,67
The Programme also generated more interest in securities (i.e., mutual funds, derivatives, REIT), reducing the level of interest in simple savings account:
27,4% 16,1% 10,4% 10,3% 8,0% 7,0% 6,9% 3,4% 3,3% 2,3% 1,5% 1,4% 1,4% 0,3% 0,3% 26,6% 17,0% 10,8% 7,8% 8,7% 6,5% 5,0% 4,2% 4,3% 4,0% 1,0% 0,0% 3,2% 0,7% 0,1%
Before After
If you had R$ 1 million, how would you distribute this amount among the investment products? (average of all respondents)
The initiative relatively succeeded in: Increasing the participants’ awareness about investment products (notably securities) Developing the participants’ perception concerning some key aspects of securities Generating more interest in securities, probably turning to future investment intention, particularly considering that the participants are knowledge multipliers
CROWDFUNDING
Study investors preferences and opinions concerning crowdfunding (particularly equity crowdfunding) Understand the profile of interested investors Provide subsidies to a specific rule to be issued by CVM
Conduction of a quantitative survey with investors who accessed the CVM’s investors assistance service (SAC) in our website Questionnaire sent by email covering relevant issues about the theme:
Level of interest Investment amounts and favorite segments to invest Expected returns Main concerns (fraud risks, business failure, lack of transparency)
The results indicate there is a high level of interest in investing in equity crowdfunding projects (86% of the respondents)
86% 14%
Yes No The results are consistent with the respondents profile: Young, high-income and with superior literacy levels If you believe in a SME's business plan, would be inclined to invest in it through this kind of investment?
The results indicate a conservative profile regarding willing investment amounts 78% of the respondents would be willing to invest less than R$ 10,000 (about US$ 2,560) How much would you willing to invest in a single project? 63% 15% 13% 4% 4% 10 20 30 40 50 60 70 80 Below R$ 5.000 Between R$ 5.001 and R$ 10.000 Between R$ 10.001 and 50.000 Between R$ 50.001 and 100.000 Above R$ 100.000
Technology is the favorite segment of potential investors Besides these segments, education and sports/leisure were also spontaneously mentioned by respondents What segment arouses your interest? 1= less interest 5= greater interest
2,81 3,46 3,60 4,49 1 2 3 4 5 Real Estate Food Health Technology
97% of respondents intend to have returns in up to 5 years 56% expect a quick return (up to 2 years) How long are you willing to wait until receive returns of this investment?
Possible incompatibility with proposed projects (maturity> 3 years)
27% 29% 13% 27% 3% 5 10 15 20 25 30 35 < 1 year Between 1 and 2 years Between 2 and 3 years Between 3 and 5 years More than 5 years
Frauds and business failures are the most feared risks In your point of view, what are the higher risks concerning equity crowdfunding? 1= lower risk 5= higher risk
Base: 114 respondents
The survey raised relevant subsidies to the rule-making process Some of initial views: Efficient disclosure rules and regular inspections might mitigate the main concerns presented by respondents (fraud risks, business failures, lack of information) Intended smaller investment amounts raise attention to regulation costs Expected quick returns, which, as a rule, are not consistent with the maturity
success of these businesses (efficient disclosure and redemption rules)
Early childhood 6-18 years old Adults 50+ years old
Early Childhood project
Improving non- cognitive skills to promote long- term savings and healthy financial life
CVM website for children Financial education apps for teenagers
New Middle Class (Brazilian C Class) project Financial planning for Rio State public servants “Older Than 50” project Educational and research activities aiming to protect elderly people from financial scams and abuse Partnerships (CEPET- IVB, UFRJ, PUC e MP)
Short/medium-term impact Medium/Long-term impact
Understanding Victims of Investment Fraud: a quantitative and qualitative study (in partnership with MP). Financial Literacy and Personality Traits Survey: 3 questions FinLit Survey (Australia, Canada, Finland, France, Germany, Italy, Japan, New Zealand, Romania, Russia, Sweden, Switzerland, The Netherlands and United States) The Big Five personality traits:
to experience, conscientiousness, extraversion, agreeableness, and neuroticism. Outreach to Retail Investors Concerning Regulatory Initiatives Disclosures (understanding).
CVM’s website: www.cvm.gov.br Investor’s Portal: www.investidor.gov.br BE Blog: pensologoinvisto.cvm.gov.br “CVMEducacional” : Twitter: twitter.com/CVMEducacional YouTube:www.youtube.com/CVMEducacional Facebook: facebook.com/CVMEducacional