Global financial planning professional body, the Financial Planning Standards Board (FPSB), has recommended that investors should take financial tests before investing in complex products like cryptocurrencies.
In a press statement on June 1, the FPSB stated that investors should exhibit the minimum level of financial literacy considering that sectors like cryptocurrencies are largely unregulated with numerous risks.
The push for the financial test is part of FPSB’s recommendation to the International Organization of Securities Commissions (IOSCO) for oversight of crypto assets.
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“If IOSCO members continue to allow self-directed investing in complex products, self-directed retail investors’ ability to access digital trading platforms should require successful completion of a ‘financial knowledge test’ to demonstrate a minimum level of financial literacy and capability,” FPSB said.
Regulations struggling to keep up
The body acknowledged that the evolution of cryptocurrencies had exposed investors to higher risk alongside fraud and scams. Furthermore, the agency noted that crypto assets licensing and product regulation struggles to keep up with the fast-changing landscape.
The recommendations also called for more opportunities to offer investors financial advice before venturing into crypto assets. Interestingly, the IOSCO members have also been asked to prohibit the use of credit cards in the purchase of digital currencies.
With social media playing a central role in wooing crypto investors, the FSB is also calling for the enactment of regulation to manage influencers termed ‘fin-influencers’. In this line, the professional body wants fintech influencers to be qualified as financial advisors.
To prevent future social media fintech scams, IOSCO members have been urged to work closely with tech firms and ban perpetrators for defrauding unsuspecting investors.
The proposals are part of IOSCO’s push to lead the enactment of a uniform global cryptocurrency regulation mechanism amid increased investments.
As previously reported by Finbold, IOSCO chairperson Ashley Alder had hinted that a global crypto regulation body would likely be unveiled as early as next year. The body’s mandate will be to coordinate uniform crypto sector regulations.
