ASIC robo guidance not adequate

2 September 2016

The corporate regulator's guidance on digital advice does not address any useful detail about standards for robo-advice, FinaMetrica believes.

The risk tolerance firm said the Australian Securities and Investments Commission's (ASIC's) RG255 that was published this week left many questions about the integrity of robo algorithms and investment standards unanswered.

FinaMetrica's director and co-founder, Paul Resnik, said RG255 primarily clarified some important licensing questions and established very basic, minimum operation standards.

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"FinaMetrica powers risk tolerance assessment tools, in human, cyborg and robo channels around the world to ensure our customers have an accurate risk profile of the client and a risk-matched investment solution. But ASIC is not dealing with those types of issues in RG255," Resnik said.

"The operational standards appear quite low. For instance, to meet RG255 a robo firm only requires one person who understands the robo algorithm and one person who can review the advice — and they can even be the same person.

"Our guess is this will assist foreign and entrepreneurial robos to develop a presence in Australia without initially requiring a large local staff."

Resnik said the regulatory guide hardly discussed investment decision standards, knowing your client, and investment standards, which he said were at the heart of a good financial advice process.

"Robo operators need to give good advice, supported by robust defensible algorithms — it's not just about access and transaction speed," he said.

"A failure in automated advice would undermine confidence and could deliver investor losses that easily dwarf the recent scandals over mis-selling by human advisers."

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