ASIC sets guidance on robo-advice monitoring
The digital advice review process should not be a ‘tick-a-box exercise' and human advisers within digital advice licensees should monitor and test the quality of advice for compliance with the law, the corporate regulator said.
The Australian Securities and Investments Commission (ASIC) released a consultation paper and a draft Regulatory Guide on regulating digital financial product advice, or robo-advice, which set out guidance for digital advice providers from the licensing stage through to the actual provision of advice.
In monitoring and testing algorithms, the paper said licensees must have documentation that clearly outlines the purpose, scope and design of their algorithms, and they should also include ‘decision trees' or decision rules in this documentation, which are tree-like graphs or models to illustrate the decisions and their possible consequences.
The paper also said digital advice licensees would be responsible for flaws advice and should contact clients who have been affected by the flawed advice.
"Suspension of an algorithm alone is unlikely to be sufficient to rectify the problems. Licensees may also need to lodge a breach report with ASIC," the consultation paper said.
"Section 912D provides that an Australian Financial Services licensee must tell ASIC in writing within 10 business days about any significant breach (or likely breach) of the licensee's obligations."
ASIC also proposed that a digital advice licensee should have at least one responsible manager who meets the minimum training and competence standards for advisers. this manager would be responsible for day-to-day decisions about the provision financial product advice.
Because a small number of current AFSL holders wanting to operate a digital advice business may not have a responsible manager who meets the competence standards, ASIC has proposed a six-month transition period.
ASIC has asked for submissions from industry and other stakeholders by 16 May.
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