ASIC consults on robo regulation
Monday, 21 March 2016 1:03pm

ASIC has released a draft regulatory guide and consultation paper for the robo-advice sector.

The guide addresses industry concerns about and expectations for digital advice. It suggests robo-advice providers must hold an Australian financial services licence unless the information provided can be considered "factual" - i.e., where "the truth or accuracy ... cannot reasonably be questioned."

For example, ASIC highlighted a "fund supermarket"-style website where consumers can learn about the features of different financial products without any attached recommendations - in this case, an AFSL would not be required.

ASIC noted that exemptions to this rule can be provided in some cases, such as "generic financial calculator" tools that don't advertise specific products or where "conduct consists only of providing a recommendation or statement of opinion about the allocation of the funds among ... general asset types" without, once again, advertising product.

ASIC also provided additional guidance about the specific operating issues with digital advice, specifically in regards to having "adequate financial, technological and human resources to provide financial services" and "[establishing and maintaining] adequate risk management systems."

ASIC said that a digital advice AFSL applicant must understand the technology and algorithms behind the advice and be able to review the quality of advice generated by those algorithms. This would also involve regularly evaluating the ongoing relevance of the algorithms used.

The regulator also noted the "additional risks" digital advice providers face, such as cyber-attacks. As a result, ASIC said it expects all digital advice licensees to "assess their cyber security using recognised frameworks, such as the National Institute of Standards and Technology Cybersecruity Framework or the Australian Signals Directorate.

Finally, ASIC said robo providers would need to have specific compensation arrangements in place which would address "the potential for widespread loss if an algorithm is flawed" and the "effect of any aggregation of claims causes in the PI insurance policy, which may mean that losses arising for different clients as a result of one flawed algorithm may be treated as a single claim by an insurer."

"ASIC is keen to see a healthy and vibrant digital advice sector. We see digital advice as having the potential to offer Australian consumers access to good quality, low-cost, financial advice," said ASIC commissioner John Price.

"ASIC is committed to helping industry take advantage of the opportunities offered by robo-advice while ensuring that investor and financial consumer trust and confidence is not compromised. We encourage industry and other stakeholders to take part in this consultation process."

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