UK and US regulators fired respective warning shots last week at fintech darlings robo-advice and crypto-currency.
In its first review of the UK online advice sector published last week, the Financial Conduct Authority (FCA) found serious flaws in “disclosures and suitability processes” of 10 targeted firms.
The FCA examined seven automated online discretionary investment management (ODIM) businesses and three pure retail robo-advice providers – concluding both models were faulty.
For example, most of the ODIM firms, which provide ongoing investment management services under agreed client settings, had unclear “service and fee-related disclosures”, poor information-gathering procedures and inadequate governance, the FCA says.
“There appeared to be confusion within some firms as to the nature of the auto advice service being provided,” the report says. “While some networks were able to show clear oversight of the auto advice proposition, other networks lacked clarity over how responsibilities were shared between the adviser and the network.”
Likewise, human-free robo-advice platforms in the study relied heavily on assumptions rather than facts in making recommendations to clients.
“In general, we were not satisfied with the strength of [robo-advice] information gathering about clients’ financial circumstances,” the FCA says. “For example, some services failed to request or gather adequate information about customers’ debt and other outgoings. Firms should consider how to improve the amount and quality of client information collected during the auto advice process.”
The FCA has scheduled a further review of the “developing” UK robo-advice market later this year. Personalised robo-advice has just been approved for active duty in NZ under regulatory relief measures promulgated by the Financial Markets Authority (FMA).
Earlier this month Kiwi Wealth was first to market with a robo-advice system under the FMA exemption with at least one other – offered by Nikko Asset Management – expected to go live in June.
Last week the UK regulator also admitted it was investigating 24 crypto-currency businesses to “determine whether they might be carrying on regulated activities that require FCA authorisation”.
“If we conclude that they are, then we may investigate and take action, identifying and determining the most serious matters which pose the greatest risk to consumers,” the FCA told UK media.
The FCA said it had fielded seven whistleblower reports regarding crypto-currency firms in the year to date.
Also this month, the US crypto-currency market – already under scrutiny from the FMA-equivalent Securities Exchange Commission (SEC) – is facing a criminal probe into alleged market manipulation practices, according to a Bloomberg report last week.
Bloomberg says the US Justice Department has launched an investigation into “whether traders are manipulating the price of Bitcoin and other digital currencies”.
“The investigation is focused on illegal practices that can influence prices — such as spoofing, or flooding the market with fake orders to trick other traders into buying or selling, said the people, who asked not to be identified because the review is private,” the report says. “Federal prosecutors are working with the Commodity Futures Trading Commission, a financial regulator that oversees derivatives tied to Bitcoin…”
The FMA has issued guidance on crypto-currencies for investors warning they “are not regulated in NZ”.
However, a number of platforms are marketing crypto-currencies directly to New Zealanders including the recently-rebranded MyCrytpoSaver (formerly MyBitcoinSaver).
The platform, which limits client crypto-purchases to $2,000 each month, has bought $7 million worth of Bitcoin on behalf of 5,000 NZ clients since 2014.
In a statement following the rebrand in May, MyCryptoSaver CEO Sam Blackmore, said: “This ensures responsible trading and means that investors make gains from the overall rising trend of cryptocurrencies rather than unpredictable short-term volatility.”
The highly-volatile Bitcoin is currently trading at about US$7,500 – down from its US$20,000 high last December.
Blackmore said in a release this March the firm aimed to “take the stress and complication out of buying Bitcoin and help anyone — from millennials to grandparents…”.