The Financial Markets Authority (FMA) is now accepting applications from entities that wish to provide personalised robo-advice to consumers.
This represents another big step forward in closing the financial advice gap for consumers and provides more regulatory certainty for businesses that wish to innovate and provide personalised digital advice services through a computer program using algorithms (also referred to as "robo-advice").
As outlined in a previous Bell Gully publication,1 the Financial Advisers Act 2008 only accommodated the provision of personalised financial advice and investment planning solutions by a human. A solution is in the pipeline (in the form of a new "technology neutral" financial advice regime).2 However, the new regime is not expected to take effect until May 2019, meaning that (until now) consumers and digital advice providers were in a position where there was a "will" but not a "way".
Exemption mechanism is now in place
In response to the issue, and following a consultation process, the FMA has put in place an exemption mechanism to remove this rigidity from the existing regime. The exemption is contained in the
Financial Advisers (Personalised Digital Advice) Exemption Notice 20183 (the
exemption) and allows FMA approved entities (providers) to provide personalised robo-advice to consumers, subject to certain consumer protection safeguards. This is how it works:
Providers will be listed in Schedule 1 to the exemption.
To become a provider, an entity must:
complete the application process and be approved by the FMA;
be registered on the Financial Service Providers Register; and
be a member of an approved dispute resolution scheme.
Providers will need to comply with exemption conditions. The conditions include prescribed disclosure, conduct and record keeping requirements.
As set out in the application guide,4 the application process will require the applicant to provide a reasonable amount of detail concerning their digital advice business, policies, procedures and controls. Applicants will need to provide good character declarations to show that they meet certain minimum standards demonstrating their capacity and competency to provide personalised robo-advice. The application process and information requirements are consistent with other FMA-supervised financial markets regimes.
The FMA has indicated that it expects applications to be approved within one to three months. Although, this will depend on the quality of the information contained in the application, and the number of applications received.
Before proceeding with an application, we recommend that applicants should also consider whether other legislative obligations will be triggered by the provision of robo-advice. For example, broking and custody, AML and privacy laws should all be considered at the outset of the application process (to avoid surprises – and additional costs down the track).
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.