By Daniel Knight and Claire De Koeyer
The Australian Securities and Investments Commission (ASIC) this week released Regulatory Guide 255: Providing digital financial product advice to retail clients (RG). The RG clarifies how financial product advice obligations apply to providers of digital advice.
ASIC supports the development of a healthy and robust ‘digital advice’ or ‘robo-advice’ market in Australia, while recognising the need to protect consumers.
As with other advice providers, robo-advisers will need to hold an Australian Financial Services Licence (AFSL) or be authorised by an AFSL holder and will be subject to a range of duties, including the duty to act in the best interests of their clients.
The RG outlines ASIC’s specific expectations of robo-advisers. These include:
- providing appropriately scaled advice. The RG confirms ASIC’s view that advisers and clients can agree the scope of advice to be provided, also long as the client understands the limited scope of advice and what is not being offered to them;
- applying a “triage” process to filter out clients seeking advice on an area outside the agreed scope or for whom digital advice is not appropriate;
- ensuring they understand the underlying technology and algorithms;
- having at least one responsible manager who meets applicable training and competency standards;
- testing algorithms that underpin the advice initially and on an ongoing basis;
- monitoring the quality of digital advice provided, including by reviewing a sample of the advice;
- assessing cyber security risks and ensuring adequate security compliance measures are in place; and
- considering how the advice will be interpreted by clients on different electronic devices.
Startups providing digital advice may be eligible for an AFSL exemption through ASIC’s proposed regulatory sandbox, however no final announcements have been made about the design of the sandbox or eligibility criteria.
The RG can be found here.