Healthy financial markets exist when there are laws, regulations, and courts that protect shareholders and creditors from unscrupulous criminals who actively defraud investors of their legitimate profits.

Investors need confidence in their markets to acquire stock or shares and to extend credit.

Professional versus nonprofessional investors -Professional and non-professional financial investors generally differ in their level of expertise, the scope of their investment activities, and even the level of regulatory oversight.

Professional Investors are generally regarded as having a high level of financial knowledge, training, and experience. For example, financial institutions, hedge funds, mutual funds, investment advisors, and professional traders. They should have a deep understanding of investing.

Non-professional investors are individuals who invest in financial instruments like shares, stocks, bonds, and mutual funds for personal purposes. They usually have a basic understanding of investing.

Both professional and non-professional investors need protection.

Current statistics on frauds and scams

Financial crime poses an enormous systemic risk to the global economy. The annual cost of financial crime is estimated to be anything from US$1.4 trillion to US$3.5 trillion. Global compliance costs to fight financial crime has reached US$206 billion.

Let’s examine investor protection in 3 jurisdictions.

U.S.–The U.S. is a complex arena in terms of investor protections.

U.S. Banks – U.S. Banks are regulated on either the federal or state level, depending on how they are chartered. Some are regulated by both. The federal regulator is the Office of the Comptroller of the Currency (OCC), a bureau of the U.S. Department of the Treasury.

Nearly all U.S. banks are insured by the Federal Deposit Insurance Corporation (FDIC). Deposit insurance is the government's guarantee that an account holder's money at an insured bank is safe up to $250,000 per account. FDIC collects fees (insurance premiums) from banks to cover this insurance.

Deposit insurance is calculated dollar-for-dollar, principal plus any interest accrued or due to the depositor, through the date of default. Despite regulation, U.S banks do fail.

The collapse of Silicon Valley Bank cost FDIC US$20 billion while the failure of Signature Bank cost just US$2.5 billion. Despite these losses there is still extraordinary confidence in FDIC’s ability to meet its promise of insuring all insured deposits.

Securities Market- The Securities Investor Protection Corporation (SIPC) provides the principal legislative investor protection when a U.S. brokerage fails. SIPC reports to the U.S. Securities and Exchange Commission (SEC). The SEC creates rules that establish the role of self-regulatory organizations and examining authorities. SIPC’s member firms are also required to provide information and documentation as necessary to assist in accomplishing these inspections.

SIPC insurance helps by protecting assets in a brokerage account (such as stocks, bonds, and ETFs).

Crypto-assets – The SEC has had many issues in seeking to regulate the U.S. crypto-asset market. However, the bankruptcies of FTX, BlockFi, Voyager Digital, and other cryptocurrency platforms, has seen the SEC accelerate its push to subject these markets to its regulations. In the first half of 2023 alone, the SEC took 24 crypto-asset enforcement actions.

The SEC reportedly made these crypto-related moves to prevent further fraud, reduce market manipulation, and force more disclosure of relevant information to investors and crypto-asset holders. Nevertheless, many critics in the U.S. crypto-asset industry disagree. This disagreement is already playing out in the U.S. courts.

Regardless of the criticism, the SEC continues to push ahead with enforcement actions and its determination to regulate the market and protect investors.

Singapore–The Monetary Authority of Singapore (MAS) is the primary financial regulator for Singapore.

Singapore’s Banks– The MAS regulates all banking activities and Singapore has had bank deposit protection for many years. But the MAS has recently released proposals to increase deposit insurance coverage per depositor to S$100,000, and to improve the clarity and operational efficiency of the deposit insurance scheme which will result in 91% of depositors being fully covered by deposit insurance in the event of a bank failure.

Singapore’s Securities Market - The Singapore Exchange (SGX) is the front-line regulator and operator of Singapore’s securities and derivatives markets.

Singapore’s overall investor protection regime is best illustrated by government’s view that all investments carry risk, that ultimately, investors must take responsibility for their financial decisions. The Singapore government want investors to critically assess investment products and refrain from investing in any product they do not understand or where the returns sound too good to be true.

However, the Singapore government is not taking a laissez faire approach to investor protection. The MAS’s primary objective (through the SGX) is still to safeguard the interests of retail investors.

The MAS ensures investors have access to adequate information and that intermediaries deal fairly with them. Public offerings of securities such as shares, bonds, and investment funds must be made with a prospectus registered by MAS. Brokers, financial advisers, and fund managers must be licensed by MAS, and adhere to rules governing their conduct of business with customers in a fair, transparent manner.

The SGX also maintains a Fidelity Fund. The fund compensates investors (other than accredited investors) who suffer pecuniary losses in connection with dealing or trading on SGX’s markets. These losses must relate to the theft, misuse, or misappropriation of money or funds in relation to any money or property placed with such SGX member or its agent.

Crypto-assets - The announcement in July this year by the MAS of new requirements for Digital Payment Token (DTP) service providers (essentially the crypto-asset market) and a consultation paper on additional regulations and prohibitions against unfair trading practices is classic MAS.

Singapore now has new custody and segregation requirements for DPT service providers, with obligations to safekeep customer assets under a statutory trust.

The MAS is also seeking the public’s views on its proposed regulatory measures with particular focus on unfair trading practices.

The MAS’ proposals also provide a new framework for regulating virtual asset trading platforms (VATPs), and now VATPs must comply with regulatory rules to ensure investor protection.

European Union–The EU is a union of 27 member states, located primarily in Europe and its mandate covers an estimated population of 448 million EU residents. The European Commission (EC) as part of the executive of the EU helps to shape the EU's overall strategy, proposes new EU laws and policies, monitors their implementation, and manages the EU budget.

The EU’s approach to investor protection is referred to as modernized investor protection and aims to protect investors from unlawful expropriation, discrimination, denial of justice or fundamental violations of procedural guarantees under the rule of law.

The European Securities and Markets Authority (ESMA) is the EU’s financial markets regulator and supervisor with an overall goal investor protection, to serve financial consumers’ needs and to reinforce investor’s abilities to make informed choices.

EU Banks – The EU has had deposit insurance legislation for many years. Deposits of up to €100,000 are protected in the case of a bank failure. However, this was previously done through countries' national deposit guarantee schemes. The EU preferred to adopt a common European scheme, rather than rely on the separate national schemes in order to decrease vulnerability to large local shocks.

The European Deposit Insurance Scheme (EDIS), by centralising deposit insurance, provides a stronger insurance cover for retail depositors. EDIS has been introduced in stages but by 2024, all bank deposits in euro will be insured by EDIS.

EU’s Securities Market - The EU’s Markets in Financial Instruments Directive 2014 (MiFID II) is a legal framework for the EU’s securities markets, investment intermediaries, and trading venues.

MiFID II requires that financial firms assess the suitability and appropriateness of financial products to their customers. Firms must assess if a client has the ability to bear the losses incurred from a product and their tolerance of the risk involved. Importantly, MiFID II allows EU member states to ban certain products permanently, if they consider these products are not in the interests of investors.

EU and Crypto-assets- Some believed that existing EU regulations were enough to cover the crypto-asset market. However, in May this year, the EU adopted the Markets in Crypto-Assets (MiCA) Regulation. Again, the provisions are being introduced gradually but the majority of MiCA’s provisions are anticipated to only come into effect in late 2024.

MiCA contains uniform requirements regarding the offer, issuance, and provision of crypto-asset related services for electronic money tokens (EMTs), asset-referenced tokens (ARTs), and other crypto assets, such as utility tokens, that are not covered by existing EU regulations.

MiCA also provides for new consumer protection rules for Crypto Asset Service Providers (CASPs), like trading venues and crypto wallets. The goal of MiCA is to strike a balance between protecting investors and fostering innovation in crypto markets.

Global investor protection is complex and evolving field. The goal is to strike a balance between promoting investment and economic growth while safeguarding the interests of investors and maintaining market integrity.