The eagerly-awaited exemption for digitalised (robo) financial advice has moved another step closer with the Financial Markets Authority (FMA) seeking comments on a draft exemption and authorisation regime to permit personalised digital-advice in New Zealand.
Submissions are due by 15 December 2017 and the FMA intends to begin accepting applications for the authorisation to use the relief early next year.
As previously noted, we support this exemption as it should provide the opportunity of providing technology-based financial advice to help bridge the advice gap for the many New Zealanders who cannot, or do not wish to, pay for personalised financial advice.
The digital-advice exemption
The Financial Advisers (Personalised Digital Advice) Exemption Notice 2018 (the exemption) will permit financial adviser entities to provide personalised digital advice services to retail clients, provided they are approved and can meet the disclosure, procedural and record-keeping requirements.
The exemption will be limited to advisory services provided by approved providers that relate to certain eligible products. It will not have financial limits, because the FMA accepts, after receiving submissions, that these limits may be difficult to apply or may have unintended consequences.
Authorisation for the exemption
Providers who wish to rely on the exemption must be authorised by the FMA. As part of the authorisation process, the FMA will require:
- good character – delivery of director and senior manager declarations covering a range of compliance topics. For many licensed providers, this criterion will already have been met
- capability – demonstration of expertise in the necessary technology and algorithms used, and the knowledge, skills and experience to oversee and review the advice generated
- risk management processes – establishment of processes that monitor and test the digital advice service
- information technology systems – the IT systems are secure, reliable and efficient, and risks are managed, including that there are cyber-resilience, and data and system security, controls to manage disruptive events and protect client data, and
- client filtering processes – filtration out of certain people for whom the advice is not appropriate, or who want advice on areas outside the scope of the service provided.
Conditions of the exemption
Disclosure: providers will need to disclose the information listed in the exemption to each retail client before or at the same time as the client receives advice through the service, by:
- explaining the nature and scope of the service – e.g. how it works, any limits and what products are available/considered
- details of the fees for the service and other remuneration the provider receives
- details of any interests or relationships that are reasonably likely to materially influence the provider when providing the services, and
- how complaints are handled.
Disclosure does not need to be set out in a disclosure statement and the form and method of disclosure is not prescribed, creating space for innovative approaches.
Compliance with the code of professional conduct: where the provider must establish procedures to ensure that certain code standards are complied with, such as to:
- put the interests of the client first and act with integrity
- effectively manage conflicts of interests
- behave professionally in all client dealings and ensure communications are clear, concise and effective, and
- take reasonable steps to ensure the service is suitable for the client.
Record keeping: providers must keep written records to show how they comply with the exemption conditions and make these available to the FMA on request. This will include copies of the advice provided through the digital advice platform, the client information used to generate that advice, and the algorithms and software used by the digital advice service.
Notifying the FMA of a material change in circumstances: providers must notify the FMA within five working days of becoming aware of circumstances:
- that would adversely affect their ability to provide the service effectively, or
- where directors or senior managers become subject to criminal convictions, disciplinary proceedings, adverse findings by a court or dispute resolution scheme, bankruptcy or insolvency proceedings.
Providers must also comply with the conduct obligations in Part 2 of the Financial Advisers Act.
The FMA is encouraging providers developing innovative services to engage with them early in the design process and has established an internal innovation group for this purpose.
In our experience, the FMA has been very constructive when engaging with our clients on innovative FinTech products and services. Chapman Tripp is also pleased that the FMA had regard to our submissions and those of others in designing the digital advice exemption.
|FMA Press Release on allowing personalised Robo-Advice||18 Oct 2017|
|FMA Submissions Report on Robo-Advice consultation paper||18 Oct 2017|
|FMA Consultation Paper on a proposed Robo-Advice exemption||20 Jun 2017|
|Chapman Tripp|| |
|Submissions on the FMA Consultation Paper on a Robo-Advice exemption||19 Jul 2017|
|Submissions on the Financial Advice Regime Exposure Draft||30 Apr 2017|
|Client Alert on new Financial Advisers and Service Providers Regime||17 Feb 2017|
|Brief Counsel on FinTech Regulation in Australia – Lessons for New Zealand?||4 Oct 2016|
|Brief Counsel on the Reserve Bank's view of digital disruption in banking||27 Jun 2016|