The Financial Markets Authority (FMA) has announced that it will start considering robo-advice applications in early 2018.
A pragmatic solution to an obsolete law
Innovators in the financial advice sector will welcome the FMA’s decision to accelerate the introduction of robo-advice by exercising its exemption power under the Financial Advisers Act 2008. They would otherwise have faced a wait of more than 18 months before legislative changes to enable this form of advice take effect.
Reflecting the technology of its time (albeit less than a decade ago), the Act currently only accommodates the provision of personalised financial advice by a human. Consequently, it effectively prohibits the provision of “robo-advice” – that is, financial advice generated by an algorithm which is tailored to an individual’s personal financial circumstances and goals. This prohibition has frustrated those who see robo-advice as a solution to the “financial advice gap” which will give more New Zealanders access to affordable, quality financial guidance.
While this obsolete law is being addressed in the overhaul of the Act (detailed here), that law change will not take effect until May 2019.
Nature of the exemption
While full details of the exemption are yet to be finalised, the FMA has confirmed that:
- it will not impose financial limits on personalised robo-advice, and
- the eligible product list has been expanded to include mortgages and personal insurance products.
Details of the exemption process
The FMA has indicated that it will start taking exemption applications in early 2018.
It has advised that companies seeking to offer personalised robo-advice will have to provide the FMA with:
- good character declarations for directors and senior managers, and
- information showing they have the capability and competence to provide the robo-advice service.
The FMA has also advised that the exemption conditions will also be designed to be consistent with the requirements for authorised financial advisers.
The FMA will begin consulting next month on the specific details of the application process and the drafting of the exemption notice.
If you would like to talk to us further about robo-advice and what it means for your business, please contact one of our team.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.