IOSCO Calls for Close Monitoring of the Rapidly Developing Automated Advice Market

IOSCO published an update to a July 2014 report on social media and automation of advice tools. The survey indicated rapid development in the automated investment advice market since 2014. IOSCO concluded that such growth requires ongoing monitoring "to help regulators understand the impact on the provision of investment advice to retail clients."

IOSCO found:

  • the automated investment advice market has experienced continued expansion on a global scale, with a new presence in jurisdictions like Brazil, Mexico and Korea;

  • regulators generally have "very limited direct data or knowledge about the users of automated advice tools, the number of tool providers and assets managed through such tools" because firms that already provide advice "do not have to file a notification of change to their business activities with the regulator before beginning to provide automated advice";

  • exchange-traded and investment funds remain the most common investment products for automated advice;

  • ambiguity persists "when the output of an automated tool crosses the threshold of general investment-related information to more customer-specific advice/recommendations";

  • most automated tools provide focused investment advice and portfolio management "as opposed to overall financial planning";

  • "complex and highly speculative" over-the-counter derivatives "are marketed to unsophisticated retail investors using aggressive marketing tactics," with "so-called 'experts'" providing advice without necessarily having bona fide expertise;

  • "regulators are keeping pace and evolving their supervisory techniques as new technology changes/expands the possibilities for advice delivery," including expansion to complex products;

  • "[a]s cybersecurity threats continue to proliferate," online automated investment tools may be the target of attacks;

  • "questions arise" as to what sort of reviews firms should conduct on third-party automated advice tools; and

  • in jurisdictions "where automated advice is most prevalent," regulators are developing "dedicated FinTech units or have put in specific structures such as 'regulatory sandboxes' to engage with firms that deliver financial services."

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