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You are here: Home / Investment News / … as ASIC gives advice for robots

… as ASIC gives advice for robots

September 4, 2016

robonDigital advice providers in Australia have been given six months to comply with new rules released by ASIC last week.

According to the ASIC regulatory guideline titled ‘Providing digital financial product advice to retail clients’, so-called ‘robo-advice’ has taken off in Australia over the last couple of years, prompting the need for greater clarity on how the law applies to the sector.

“The provision of digital advice has grown rapidly in Australia since 2014, with a number of start-up Australian financial services (AFS) licensees and existing AFS licensees developing digital advice models,” the ASIC guide says. “We expect this growth to continue.”

As well as reiterating the general obligations applying to AFS licensees, the regulatory guidelines include specific duties that apply to digital advice providers.

For example, ASIC says digital advice firms must have suitably-qualified staff who understand “the technology and algorithms” involved as well as at least one person capable of reviewing any advice generated by the system.

“As part of your risk management systems, you should regularly monitor and test the algorithms that underpin the advice,” the guideline says. “The extent of your arrangements will depend on the nature, scale and complexity of your digital advice business.”

The regulator also clarifies how robo-advice firms should comply with the duty to act in their clients’ best interests, emphasising the need to produce communications that are “user focused, clear and timely”.

“This means you should put the client’s needs first when designing your communications and disclosure, and ensure that key information relevant to the client is provided at the right time in the decision-making process,” the guideline says.

While the border between robo-advice and automated information-supply remains slightly fuzzy, the ASIC document says “generic financial calculators” and machine-generated asset allocation recommendations would be exempt from the licensing regime as long as no “specific financial products” were involved.

“ASIC supports the development of a healthy and robust digital advice market in Australia,” the guideline says. “In an environment where only around 20% of adult Australians seek personal advice, we think that digital advice has the potential to be a convenient and low-cost option for retail clients who may not otherwise seek advice.”

The NZ government echoed similar sentiments in its recommended changes to the Financial Advisers Act (FAA) published this July.

In a release at the time, Commerce Minister, Paul Goldsmith, said a major aim of the proposed FAA amendments was to encourage “innovation and [enable] the provision of online ‘robo’ advice”.

The Ministry of Business, Innovation and Employment is due to report back to government on how to implement the FAA proposals before the end of this year.

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