Policing robo-advice is a global challenge that was unlikely to be solved by waging “algorithm wars”, according to Financial Markets Authority (FMA) chief, Rob Everett.
With the NZ financial regulator poised to take on the robo-cop role under new Financial Adviser Act (FAA) reforms released last week, Everett said the FMA was developing a techno-strategy.
“Robo-advice has got all global regulators scratching their heads,” he said. “But we don’t want too get into algorithm wars – we know that’s not the right place to be.”
The FAA reform proposals released last week recommended removing the current requirement for all personal financial advice to be delivered by a “natural person”, clearing the way for automated advice platforms to launch in NZ.
“Internationally, robo-advice has a rapidly growing market share and is increasing the accessibility of advice for young, internet-savvy investors. New technologies can help those providing advice to offer new services and reach new consumer segments, as well as making existing relationships more efficient to manage,” the FAA review says. “Despite its intention, the prohibition in New Zealand is now an undue barrier to advice, and overseas experience demonstrates that controls can be put into place for robo-advice to ensure consumer protection.”
According to the FAA review paper, robo-advice would have to “meet the same standards” as human-based advice “however the means of meeting these standards will differ”.
“For example, while a financial adviser may be required to demonstrate competence through having passed a qualification, a robo-advice platform may have to demonstrate equivalent quality through algorithm and scenario testing,” the FAA paper says.
While the FMA would be responsible for issuing robo-licences, Everett said the regulatory judgment wouldn’t necessarily hinge on the technical algorithmic details.
“We will be looking for what the algorithms are designed to do… we will need to understand the design principles,” he said.
For instance, he said the FMA would investigate whether the robo-advice systems harbour any subtle behavioural devices leading consumers towards any particular product.
In the FAA review consultation process all the major NZ banks lobbied in favour of legalising robo-advice.