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Europe’s financial regulators are calling for tougher consumer protection to address the risks from growing technology use in the provision and consumption of financial services.

In a joint report to European policymakers, the region’s securities, banking, insurance and pension regulators said that while the rise of digital finance creates new opportunities for both the financial industry and consumers, it also generates new risks.

“New financial services business models may harm consumers, especially those with lower levels of financial and/or digital literacy,” the report said.

At the same time, online distribution channels, combined with aggressive marketing and far-reaching social media, can “exacerbate certain risks to consumer protection,” it said.

In particular, investors face the risk of harm from the “intentional or negligent provision of inaccurate or misleading information, often by other, non-sophisticated, retail consumers,” it said. “This risk is exacerbated by the anonymity inherent to social media profiles and the network effects that these platforms can trigger.”

As a result, consumers are at increased risk of being preyed upon by scammers and other bad actors, it warned.

Scams aside, the wide reach of social media could spawn financial stability risks due to increased risk taking, speculation and “excessive herding” behaviour by retail investors, it warned.

Additionally, the growth of digital finance increases the prospect of disintermediation and fragmentation, and “traditional players may risk being crowded out of the market,” the regulators said.

“The entry of BigTechs into financial services may create concentration risks and raise level playing field issues relative to incumbent financial groups, because the existing prudential and consolidation frameworks were not designed with these developments in mind,” it said.

In response, the regulators — including the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority — recommended “rapid action” to ensure that the regulatory framework remains suited to the digital age.

Among other things, their report called for stronger consumer protection in the digital realm, including enhanced disclosures, improved complaint handling, and measures to prevent the mis-selling of tied or bundled products.

It also recommended increased oversight of the use of social media as a source of financial advice, particularly investment and trading advice. And it called for action to improve digital and financial literacy and prevent exclusion and discrimination.

The report also said that regulators must beef up their own expertise and technical capabilities to oversee digital markets, and made recommendations for addressing some of the effects of increased industry fragmentation.

The report followed a request from the European Commission for the regulators’ advice on emerging issues arising out of industry innovation, including the rise of digital finance, with a view to ensuring consumer protection, safeguarding financial stability, and protecting the integrity of the financial sector.