Robo-Advice: Reviewing ASIC’s proposed guidance

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Robo-Advice: Reviewing ASIC's proposed guidanceOn 21 March 2016, ASIC released their proposed guidance on ‘Robo-Advice’ in Australia. The proposed guidance comes in the form of a publication entitled ‘Consultation Paper 254: Regulating Digital Financial Product Advice’. ASIC are seeking responses to their consultation paper by 16 May 2016.

ASIC are asking Australian Financial Service Licensees (AFS Licensees) to provide feedback on the following areas:

  1. The likely compliance costs of implementing procedures set out in the consultation paper;
  2. The likely effect on competition in the market; and
  3. Any other impacts, costs or benefits.

What is ‘Robo-Advice’ and do I need an AFSL?

‘Robo-Advice’ is the provision of automated digital financial product advice to clients which is generated through algorithms and technology without the involvement of a human adviser. ASIC’s current stance is that entities providing financial product advice including Robo-Advice must hold an AFSL.

In some circumstances entities may be exempt from holding an AFSL. This can occur when:

  1. You provide general advice by a generic financial calculator. A generic financial calculator:
    1. Makes numerical calculations or finds out the result of a number calculation relating to a financial product; and
    2. Does not advertise or promote one or more specific financial products as per RG 167.51.
  2. You are not considered to be providing financial product advise if your business only provides recommendations or a statement of opinion about the allocation of funds among the general asset types. This exemption does not apply if the recommendation/statement relates to a specific financial product or relates to specific classes of financial products.

For further information or assistance in determining whether you are eligible for an exemption. Please contact us.

Proposed Guidance to Assist Robo-Advice Providers

ASIC has released Draft Regulatory Guide (RG) 000 ‘Providing General and Financial Product Advice to retail clients’ to assist Robo-Advice providers with complying with the law. ASIC’s draft RG 000 can be accessed here. RG 000 seeks to provide clarification on the following areas:

  • How a Responsible Manager’s Organisational Competence is applied to Robo-Advice AFS Licensees
  • Procedures for Robo-Advice AFS Licensees to monitor and test the algorithms used to provide the advice
  • How Robo-Advice AFS Licensees can comply with best interest duties set out in the Corporations Act when providing scaled advice to clients.

Organisational Competence

ASIC has proposed Robo-Advice AFS Licensees are to have at least one Responsible Manager who meets the standard training and competence requirements as set out in RG146. For Robo-Advice AFS Licensees who do not have a Responsible Manager that meets this requirement ASIC is suggesting a 6 month transitional period for a Responsible Manager to be appointed.

Procedures for Monitoring and Testing Algorithms

AFS Licensees who intend to provide ‘Robo-Advice’ will need to meet all of the required general obligations of an AFS licensee under Section 912A of the Corporations Act, this includes having access to adequate human resources. RG 000 suggests that an entity providing ‘Robo-Advice’ should ensure there is a person within the organisation that:

  • Understands the technology and algorithms to be provided by the business; and
  • Can review the digital advice generated by the algorithms.

RG 000 allows for AFS Licensees to outsource the technological side of the business to appropriately qualified external service providers, however, it is important to note that AFS Licensees providing ‘Robo-Advice’ maintain full responsibility for the provision of the advice provided.

RG 000 also outlines the adequate risk management systems ‘Robo-Advice’ AFS Licensees must implement, including procedures for identifying, mitigating and resolving instances of cyber-attacks.

Scaled Advice

ASIC expects that all ‘Robo-Advice’ AFS Licensees meet the Best Interests obligations outlined in the Corporations Act. RG 244 provides guidance for all AFS Licensees providing Scaled Advice. RG 000 sets out minimum standards for ‘Robo-Advice’ providers offering scaled advice.

Next Steps

For further information read ASIC’s Consultation Paper 254: Regulating Digital Financial Product Advice.

If you would like to discuss any of the Consultation Paper further or need assistance putting together a submission to ASIC

About The Author

Sarah Murray

Sarah works with the Compliance Team with a particular focus on compliance and legal services. Sarah works with the Legal Team providing ongoing assistance in drafting and reviewing documentation as well as legal research. Sarah assists clients with AFSL and ACL applications, variations and also assists in the implementation of compliance reviews. She provides ongoing compliance support in the form of compliance program implementation and reviews.

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