The Australian Securities and Investments Commission (ASIC) has focused on the need for digital advice providers to test and monitor their algorithms in its latest regulatory guidance on providing digital financial product advice, while still encouraging innovation.
ASIC deputy chairman, Peter Kell, said: “ASIC supports the development of a healthy and robust digital advice market in Australia as a convenient, low-cost option for retail clients, and our guidance will help ensure that consumers can have confidence when they deal with digital advice providers”.
In releasing Regulatory Guide 255, ASIC said digital advice licensees would be responsible for self-surveillance, monitoring and testing of its algorithms, including test plans, test cases, test results, defect resolution, and final test results.
“We expect robust testing of algorithms to occur before digital advice is first provided to a client, and on a regular basis after that,” it said.
Digital advice providers must also have the capability to cease the provision of advice if an error in algorithms is found, and that error could result in client loss or a breach of the Corporations Act.
They must also ensure they have sufficient human and technological resources to monitor and test the performance of algorithms, while providing frequent reviews of advice given.
Where digital advice providers outsourced functions, they were responsible for not only choosing the appropriate outsourced service providers, they must also monitor ongoing performance of these outsourced service providers.
The firms must also have at least one person who had an overall understanding of technology and algorithms, and the risks associated with providing digital advice.
Where functions were outsourced to a company, it was not necessary for that company to attain an Australian financial services licence as they were not providing financial product advice to clients.
ASIC released a consultation paper on digital advice in March, which received 38 submissions until May, when the consultation period closed.
