The International Organization of Securities Commissions (IOSCO) today published its Report on the IOSCO Social Media and Automation of Advice Tools Surveys.
presents the results of four surveys on the use of social media and automated advice tools in capital markets, and how regulators oversee the use of these tools.
IOSCO undertook the project on social media and automated advice tools because technology, particularly the use of the Internet, is changing the ways in which market intermediaries interact with both potential and existing customers. The work represents an important international initiative to obtain data on previously unknown issues and where use and oversight of these mediums continues to evolve.
Social media provides a means to multiply the number of interactions between investors and market intermediaries. From an intermediary's perspective, an automated tool presents an opportunity to formulate and deliver advice to customers in a more efficient and cost effective way. But the growing use of social media and automated tools by intermediaries also presents numerous challenges to regulators.
Social media and automated advice tools have an increasingly diverse range of functionalities that reflect the rapid advance in Internet-based technology.
During the second half of 2013, IOSCO surveyed market intermediary and regulatory practices in the use and oversight of social media and automated advice tools in order to meet two overarching objectives:
(1) to gather data to understand more fully how market intermediaries are using these mediums today and their plans for future use, and how regulators are overseeing such usage today and;
(2) to determine what unique challenges the use of social media and automated advice tools present to regulators (if any) and whether it is appropriate to devise recommendations or principles that regulators should consider in overseeing market intermediaries that use these mediums.
Results from these IOSCO surveys provide an interesting snap-shot of how regulators and intermediermediaries use (or do not use) and oversee these technologies.
With respect to social media, key results include:
• The use of social media by intermediaries is in its nascent stage but, across the globe, firms permitting its use prohibit their staff from making recommendations or providing investment advice.
• The most commonly used sites are Facebook, Twitter and LinkedIn.
• Regulators have neither defined social media, nor prohibited its use by intermediary firms.
• Increasingly, regulators are using social media sites in the supervision of firms to identify personal relationships between parties and as a source of general information.
With respect to automated advice tools, key results include:
• The use of automated advice tools is growing around the world. Intermediaries are using these tools to assist with their suitability and Know Your Customer (KYC) obligations.
• When making recommendations, the vast majority of firms do so with respect to asset classes. Specifically, collective investment schemes, mutual funds, exchange traded funds and equity classes are the most common products recommended.
• None of the regulators who responded to the survey prohibits the use of automated advice tools, but very few have specific rules or guidance related to their use. Rather, most regulators rely on, inter alia, suitability, disclosure, supervision and record keeping rules.
The report notes that it is too early to identify the unique challenges posed by social media and automated advice. Nor can definitive conclusions be drawn about the best practices in the use and oversight of these mediums. Nonetheless, the exercise has helped regulators understand how intermediaries use these tools and the challenges involved in overseeing them.
Over the coming 12 to 24 months, IOSCO intends to revisit these issues to determine whether further work is warranted.