The Financial Markets Authority (FMA) in New Zealand has decided to grant an exemption to enable personalised robo-advice. Robo-advisors provide financial advice or portfolio management online, based on mathematical rules or algorithms, with moderate to minimal human intervention.
Current legislation requires personalised advice to be delivered by a natural person, thereby restricting the ability to provide personalised robo-advice. The current law, passed in 2008, did not contemplate robo-advice.
In June, the FMA started consultation on whether it should use its exemption powers to enable personalised robo-advice (also known as online or digital advice) under the current financial advice regime to foster innovation and improve consumer access to advice. Proposed changes to financial adviser laws are also designed to address this issue, but will not come into effect until 2019.
49 submissions were received by the FMA. 47 have been published. Submissions to the consultation focused on a number of themes. Strong support was seen for an exemption from the current laws preventing personalised robo-advice.
There was general opposition to the imposition of any financial limits, such as an individual client investment limit or a limit on the total investment amount of products. Many submitters believed robo-advice should meet the same standards as those that apply to authorised financial advisers (AFAs).
The FMA considered the submissions and decided to grant an exemption. Providers will need to apply to the FMA to rely on the exemption. The FMA is aiming for this process to start in early 2018.
The press release states that finalising the exemption requires a further consultation, in November, on the details of the application process and drafting of the exemption notice.
Liam Mason, FMA Director of Regulation said, “Firms who want to offer personalised robo-advice services must apply to us to rely on the exemption. This is consistent with our gatekeeper role for other financial advisers (AFAs and QFEs) and provides us with increased visibility over the providers entering this market.”
FMA recognises financial limits may be difficult to apply in practice or may have unintended consequences. The FMA has decided not to impose financial limits on personalised robo-advice and the eligible product list has been expanded to include mortgages and personal insurance products.
Companies seeking to offer personalised robo-advice will have to provide the FMA with good character declarations for directors and senior managers as well as information showing they have the capability and competence to provide the robo-advice service. The exemption conditions will also be designed so that the robo-advice service is provided in a manner that is consistent with AFA requirements.
“The exemption conditions and our ability to monitor providers will help us to manage risks and ensure consumer protection safeguards are in place,” Mr Mason said.
A number of submissions requested exemption conditions be aligned with the requirements that will apply under the new advice regime to be put in place in 2019. The FMA is not able to bring forward requirements that would apply under the new advice regime, many of which are still to be developed. The exemption application process will not be a substitute for obtaining a licence under the new advice regime.