OSC's Investor Advisory Panel suggests compliance review of social media 'finfluencers'
The annual report from the Ontario Securities Commission (OSC) Investor Advisory Panel notes that rules limiting advice provision on digital trading platforms can prevent unsophisticated investors from obtaining information that could lend increased protection.
The Investor Advisory Panel (IAP) told the OSC to evaluate the type of advice that could benefit these do-it-yourself investors. It also suggested mandating risk-warning pop-ups and product disclaimers to appear immediately before order placement.
The IAP annual report highlights the growing shift toward digital, do-it-yourself financial services. The report cited figures indicating that the number of digital trading accounts in Canada has steadily risen from 2.3 million in 2020 to 11.4 million by late 2023. An Investment Funds Institute of Canada survey showed mutual fund and exchange-traded fund investors were relying less on financial advisors, and investor behaviour is more commonly influenced by social media influencers, “gamification,” and other “non-traditional” information sources.
“In terms of the panel's 2023 annual report, I would say the most significant aspects involve the risks and opportunities coming from the digitalization of financial services,” says Bennett Wong, the national lead of the securities and corporate finance group at Dentons.
“The report called for more understandable and transparent regulatory guidelines to improve compliance and investor competence… Currently, there are legal restrictions in place to prohibit these [order-execution-only (OEO)] firms, from giving advice to these unsophisticated investors. Except these investors would have actually been better protected if some level of advice were allowed to be given.”
The OSC’s IAP advises the OSC on policy implementation, identifying issues, providing recommendations for regulatory developments, and advice on policy proposals. The IAP released the report on June 18.
A recent survey from the Canadian Securities Administrators (CSA) reinforced the IAP’s concern about the burgeoning risk associated with digital, DIY investing. Twenty-three percent of Canadians reported that they had encountered possibly fraudulent investments, a five-point increase since 2020.
The CSA survey found that social media is an increasingly common source of investment information. The percentage of respondents using social media for investment tips rose from 18 to 53 between 2020 and 2024. Nearly half of all Canadians said they had learned about investment opportunities on social media, a 17 percent increase from 2020. Social media’s influence on the investing public is most prevalent among those 18-24 years old 82 percent of whom use YouTube, Instagram, and TikTok for advice.
“Social media and financial influencers on Facebook, Reddit, and other online chat rooms can have significant impacts on investment decisions for many investors,” says Wong. “Especially, the unsophisticated ones.”
The IAP recommended that the OSC consider conducting a compliance review of financial influencers to determine whether the organization should regulate their conduct.
It also noted that online trading platforms use a variety of digital tactics to drive user engagement without necessarily improving retail investors’ long-term outcomes, says Wong.
Another theme of the IAP report was the flow of capital into alternative forms of investing, including crypto assets. The IAP cited a study that found 83 percent of financial advisors expect to direct more of their clients’ funds into alternative assets next year. The IAP recommends the OSC continue to strengthen oversight over alternative investments, which are “speculative and high-risk.” The report noted that the OSC played a leading role with the CSA in enhancing oversight of crypto trading platforms but adds that there is “more work to be done.”
“The panel is supportive of implementing similar rules to the UK to restrict how crypto assets can be marketed and to impose stricter penalties for non-compliance,” says Wong.
Investors – especially seniors – remain vulnerable to fraud, he says. The rise of AI will inflame this issue, as fraudsters use deep fakes to disseminate false information and target victims and use their connections with cultural and religious groups to encourage fraudulent investments. Wong adds that the report did not offer any specific legal solutions to tackle the problem with AI-power fraud, but it noted that more work can be done to improve investor awareness.
The IAP recommended the Ontario Ministry of Finance and the OSC prioritize fund allocation from enforcement orders and settlements with offenders for the benefit of victimized investors.
The OSC can also up funding of the OSC’s whistle-blower program and amend the Ontario Securities Commission Act to enable the Capital Markets Tribunal to order restitution in certain circumstances, says Wong.
