Protected: ICMR Research Series: Safeguarding Malaysian Investors Against Financial Scams

In today's ever-evolving landscape, scams have emerged as a pervasive and alarming threat, preying upon the vulnerabilities of individuals and inflicting substantial financial losses. These vulnerabilities, often intertwined with overlapping characteristics, hinder individuals in their day-to-day decision-making, particularly concerning financial matters.

As we have previously discussed in our articles, the research findings of the Institute for Capital Market Research (ICMR) shed light on three crucial vulnerability drivers: financial stress, scarcity mindset, and the shock of soaring prices. These drivers have been further aggravated by the enduring repercussions of the pandemic, intensifying their impact on individuals.

Consequently, the level of financial resilience in Malaysia has suffered a significant disruption, rendering those already vulnerable even more susceptible to the seductive allure of making quick money. It is imperative, now more than ever, to delve into these vulnerabilities and explore effective strategies to safeguard against scams and protect individuals from financial harm.

Factors Influencing Scam Vulnerability

The study conducted by ICMR has revealed a significant finding: vulnerability to financial scams extends beyond conventional indicators such as desperation for money or low financial literacy. Factors such as advice from social circles, the allure of substantial gains, and overconfidence in one's financial abilities play substantial roles in rendering individuals susceptible to scams.

84% of survey respondents revealed that they had received advice, from various sources such as the internet, social media, and even trusted acquaintances like family and friends, encouraging them to invest in financial products. However, unbeknownst to them at the time, these seemingly well-intentioned recommendations led them down the path of scams and fraudulent schemes.

Figure 1: Source of advice to invest (Data Source: ICMR)

Among those who received such advice, an alarming 36% fell victim to scams and suffered financial losses. What's even more concerning is that 37% of these individuals experienced repeated losses, indicating either an increasing sophistication in scam tactics or a willingness to take risks in pursuit of substantial gains.

It is noted that scammers target a wide range of demographics, as victims of scams span across the respondent sample, albeit with a slight inclination towards the younger age group. This emphasizes the urgency of spreading awareness and implementing protective measures across all age brackets, ensuring that individuals are shielded from scams.

Interestingly, a majority of those who fell victim to scams, approximately 68%, exhibited overconfidence in their financial knowledge, despite only 35% demonstrating a strong understanding of financial literacy based on their responses to related questions. This disparity underscores the pressing need for comprehensive financial education and the cultivation of critical thinking skills.

Figure 2: Financial literacy score and financial confidence rates (Data Source: ICMR)

Understanding Behavioural Drivers Of Susceptibility

Many respondents in the survey were unaware of important financial authorities such as Bank Negara Malaysia (BNM) and the Securities Commission (SC). This lack of knowledge made them more vulnerable to scams and hindered their access to accurate information. Adding to the susceptibility were the influences of peer pressure and the trusted opinions of friends and family.

Even when individuals were aware of potential risks, the fear of missing out and the desire to follow the crowd often led them to heed ill-advised recommendations. Furthermore, the cultural phenomenon known as the "kiasu" mindset compounded the problem. Driven by the desire to outperform others, some individuals hastily invested in scams without conducting proper research.

The promise of quick rewards proved irresistible, especially in the face of rising living costs and economic uncertainty. This combination of factors made individuals easy targets for scams that preyed on their greed and the need for additional income. Another alarming finding was the tendency of victims to resist acknowledging the illegal nature of the scams.

Many individuals exhibited a reluctance to accept the information shared by authorities, often only realizing the true nature of the scheme after suffering significant financial losses. This avoidance of information created a significant barrier to protecting themselves from scams and hindered their ability to recognize warning signs.

In recent years, the landscape of scams has evolved, adapting to the digitalized world and taking advantage of our increasing reliance on the internet. This, combined with the financial challenges faced by individuals, has enabled scammers to develop more sophisticated tactics to target unsuspecting victims. Consequently, the number of reported cases of financial scams has been on the rise.

I invested RM10,000 in a company that locks my investment for 2 years for 2.5% return every month. I got my money back first few months, but it stopped. The company claimed it was because SC was freezing their activities. I don’t even know what SC is. I am aware that the returns seem too good to be true. I was greedy and saw an opportunity to earn more returns . - Annie, 40, home baker

Rising Scam Trends And The Pandemic Impact

The impact of the pandemic has been particularly concerning, as observed by the Securities Commission (SC). Notably, two types of scams have emerged prominently: 'clone firm' scams and the misuse of the SC's name and logo. In these scams, scammers create deceptive entities that closely resemble legitimate firms to deceive unsuspecting individuals.

Another prevalent tactic employed by scammers involves transferring funds into mule accounts, which adds complexity to tracking and recovering the stolen money. Despite some victims hesitating to cooperate with authorities due to minimal losses, the SC's investigation has revealed a substantial flow of money, amounting to at least RM24.7 million.

Empowering Individuals And Building A Protective Society

Scam susceptibility goes beyond mere greed; it involves a complex interplay of factors such as financial insecurity, societal pressures, and the desire for additional income. To effectively combat scams and protect individuals, it is imperative to understand the underlying behavioural drivers at play. Blaming victims is not the solution; instead, we must focus on education and awareness.

By equipping individuals with financial literacy and critical thinking skills, we empower them to discern between legitimate opportunities and scams. However, the responsibility to combat scams extends beyond individuals alone. It requires collaboration among authorities, financial institutions, and society to create a protective environment.

Stringent regulations and robust consumer protection measures are necessary to dismantle scam networks and ensure the safety of individuals. It is time to challenge the narrative surrounding scam susceptibility and acknowledge its complex nature. Together, we can create a future where individuals are empowered, scams are exposed, and the vulnerable are shielded from the clutches of fraud.

This article is part of a content series by the Institute for Capital Market Research (ICMR). Follow ICMR’s Facebook page to stay updated on behavioural tips and insights for better investing habits. To learn more about ICMR’s research on new age vulnerabilities, visit www.icmr.my or download the full report .

About the Authors

Datin Aida Jaslina Jalaludin, Head of Research, ICMR

Nadhirah Ibrahim, Research Analyst, ICMR

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