Theocharides calls for stronger investor education amid cost pressures

With the ongoing cost-of-living crisis placing severe strain on household finances, the need for citizens to possess robust financial knowledge is more critical than ever.

According to George Theocharides, chairman of the Cyprus Securities and Exchange Commission (CySEC), financial education must become a national priority across Europe to safeguard investors and prevent the failure of wider regulatory efforts.

In an article released on Tuesday, the head of Cyprus’ financial regulator stressed that while the European Union (EU) is working to make capital markets more accessible, the measures will fail unless policymakers urgently address the public’s low financial literacy.

Theocharides warned that “against the current backdrop of pressures on the public’s finances, the EU is understandably keen to introduce regulation to make it easier for retail investors to benefit from capital markets.”

He explained that EU consumers, and those in the UK, hold a significantly smaller share of their wealth in equities and mutual funds than their counterparts in other G7 nations, particularly the United States.  

“This can undermine their own financial interests, and it does little to foster strong economic growth,” he said. 

To address this imbalance, he noted, “the EU’s retail investment strategy aims to adapt disclosure rules, enhance transparency and comparability of costs, and tackle misleading marketing.”  

Yet while these measures are welcome, he warned that they come with significant risks. Policymakers, he added, must carefully consider the potential impact of any proposed reforms.  

“After July, we will have more information about why savers feel deterred from engaging, as the European Securities and Markets Authority concludes its call for evidence on the retail investor journey,” he mentioned. 

He went on to explain that “the boom in retail investing over the past few years has created new challenges and expectations for supervisory authorities, as more vulnerable consumers invest in risky products.”  

CySEC, he said, has been particularly concerned by the growing participation of younger, inexperienced investors who can be heavily influenced by social-media hype and emotive advertising.  

“Some of these products exhibit diverse risk profiles and these risks might not be always fully understood by all retail investors. This is where the importance of financial education comes into play,” he added. 

According to Theocharides, CySEC has built a strong track record in promoting investor education spanning more than a decade. As part of Cyprus’s national strategy, where financial education is gradually being included in the school curriculum, “CySEC recently completed its third round of schools’ lectures, a programme which has so far been attended by over 1,700 students.” 

He explained that “at primary level, we focus on budgeting, saving, building an emergency fund, how debit cards or bank accounts work, how to avoid scams and reorganising risk.”  

In high schools, there is a stronger emphasis on digital finance and cybersecurity, “reflecting the fact that many students are already exposed to online platforms, cryptocurrencies ads on social media and to finfluencers.”  

Meanwhile, at university level, CySEC delivers lectures that go deeper into investment risk, capital markets, the role of financial supervision and ethical finance. “The recurring theme is how regulation protects investors and ensures the healthy function of markets,” he said. 

What these initiatives have revealed, he continued, is that financial confidence among young people remains low.  

“Students often overestimate their understanding of financial products, especially crypto, and undermine the risks,” he said.  

Too many, he added, fail to recognise the need to put money aside for a rainy day and are unclear about the role of regulators, often seeing them only as enforcers rather than protectors or educators.  

“We also see that younger people tend to trust sources on the internet and social media increasingly more than previous generations,” he noted. 

On a more encouraging note, Theocharides referred to research by the Central Bank of Cyprus (CBN) and the University of Cyprus, which suggests a ripple effect from financial education.  

“Financial literacy courses for university students in Cyprus were also found to have improved the financial knowledge of those in their immediate networks, particularly those with lower initial financial literacy scores,” he said.  

This multiplier effect, he added, deserves to be explored further. 

As a regulator, he emphasised that “the ability to test perceptions from our schools’ sessions and better understand real knowledge gaps is an invaluable resource.”  

This insight, he explained, directly informs the design of investor warnings, public awareness campaigns and policymaking.  

One example, he said, is CySEC’s guidance to Cyprus-regulated firms, “warning that providing false and misleading financial advice on social media platforms can constitute a serious offence.”  

To meet the regulatory standard, “investment recommendations must be neutral and clear and avoid misleading or biased language,” he added. 

Moreover, given the international and largely web-based nature of investment firms’ activities,  Theocharides noted that CySEC has invested in a specialised technological system that analyses and monitors online marketing and social-media content.  

“This system has the ability to detect related mentions from any source globally, including social media, news sites, forums, blogs, video sites and ad networks,” he said.  

It also, he added, has the capacity to perform real-time monitoring with instant alerts on any related keyword combinations. 

Theocharides said CySEC sees its role expanding to become a leading voice in financial education. Their latest campaign, Lessons Learned, captures the experiences of ordinary citizens who have made financial mistakes, using their stories as powerful lessons for the investing public.  

“Each contributor tells a story of losing money, whether it’s being tricked by fraudsters or falling into debt because they’ve made a rash decision without doing their research. They all say how they would do things differently,” he explained. 

Yet despite such efforts, he said, poor levels of financial literacy persist and governments have been slow to respond.  

He pointed to a House of Lords report published last week urging the UK government to improve financial education at all levels, starting in primary and secondary schools, and calling on the regulator to develop new literacy programmes.  

“In April, the European Commission agreed that a more co-ordinated effort, both at EU and national levels, will be required to raise average financial literacy across the Union,” he said.  

These acknowledgements, he added, are encouraging as they highlight not only the need for a broader culture shift in how regulation is developed but also the vital role that regulators can – and must – play. 

He further observed that any new initiatives in Europe must be shaped with digitalisation in mind, given the rising tide of financial scams, “such as unregulated investments and fake communications.”  

Criminals, he warned, are now targeting supervisory authorities themselves, impersonating officers to deceive consumers and using emails to extract personal information.  

“CySEC has had its own experience of these scammers, where we took the decision to release some of the fake emails as a warning to others, as has the FCA, BaFin and others,” he mentioned.  

Many of the guides and resources produced, he added, are specifically aimed at helping people safeguard themselves in the digital financial world. 

Finally, he stressed that ongoing work across Europe and the UK to simplify regulation, remove duplication and streamline processes is commendable.  

“However, without sufficient literacy and education, investors will continue to stay away from financial markets because they consider them dangerous or incomprehensible, or they will be seduced into taking unwanted risks, and this only undermines all other policy measures,” Theocharides concluded.