New Zealand’s Financial Markets Authority proposes an exemption to financial advice legislation to allow ‘robo-advice’
The FMA joins authorities from Australia, the UK, Europe and the US in publishing guiding information on robo-advice
In future, ‘regtech’ of payments, in particular regarding AMLCTF, may use a similar model to that used by robo-advisors
Point of View
The Financial Markets Authority (FMA) in New Zealand has released a consultation paper on a proposed exemption to the Financial Advisors Act (2008), which would allow New Zealanders to receive ‘robo-advice’. The exemption would be a temporary measure, until the Act is amended.
Currently the legislation only allows for a ‘natural person’ to provide financial advice to customers. However, proposed changes to the Act to address the matter are under review. Provided they are passed by Parliament the changes would come into effect in 2019.
Robo-advice, which uses an algorithm to provide financial advice to customers that takes into account their financial situation and goals, is not a new concept. With strong growth in the market for robo-advice – also referred to as digital advice or automated advice – other authorities across several jurisdictions have published consultations and guidance on the issue over the past year.
In August last year, ASIC released regulatory guidance on providing digital financial advice to retail clients. ASIC claimed that because the underpinning legislation – the Corporations Act (2011) – is ‘technology neutral’ no legislative changes are necessary to support innovation in the provision of financial advice.
The Joint Committee of three European supervisory authorities (EBA, Europe's insurance and pensions authority and esma) in December 2016 released its Report on Automation in Financial Advice. The authorities have not imposed a regulatory regime, but will continue to monitor evolution of the market and identify issues related to compliance and cross-border implications as they arise.
The US Securities and Exchange Commission (SEC) published information on the fast-growing use of robo-advisors in February 2017. This comprises guidance for investment advisors and an Investor Bulletin article targeting individual investors.
The Financial Conduct Authority (FCA) in April 2017 published consultation draft guidance on the provision of financial advice to consumers, including automated advice. This responded to recommendations coming out of the UK Financial Advice Market Review.
Robo-advice is not directly linked to payments. Nonetheless, the model by which it operates, often using artificial intelligence, may in future be viable in the realm of ‘regtech’. Being a regulated industry, this would indeed have implications for payments.
Rather than regulation by reporting, as is the current model, it is envisaged that regtech will allow for regulators to monitor transactions made by regulated entities, in real time. This would have particularly useful implications for AMLCTF.
Presently, to meet AMLCTF obligations a service provider needs to demonstrate ‘know your customer’ (KYC). But a paradigm shift is underway, from KYC to ‘know your data’.
The opinions and views expressed in this publication are those of the authors exclusively and do not purport to reflect the opinions, views or official policy position of AusPayNet or its members.