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‘You cannot outsource responsibility’: FCA sets out robo-advice regulation plans

Money Marketing Interactive 2016

The FCA does not intend to stipulate specific due diligence criteria when it comes to using robo or automated advice services.

That was the message from FCA technical specialist Rory Percival, who told Money Marketing Interactive delegates the regulator is more interested in a “robust” end result.

He said: “We often get questions about how much [due diligence] is good enough. Let’s say you are doing research on a fund, we are not going to get into arguments about ratios. What we are interested in is the due diligence process you are going to go through and do something robust as a result of it.”

Percival acknowledged the FCA’s due diligence report, released in February, was “very short”. Commentators criticised the thematic review – which was the culmination of two years’ work – for being just six pages long.

Percival said: “It was very much about how firms should approach the subject of due diligence rather than [setting out] the specific things you need to look at.”

Percival also explained the work the regulator is doing on innovation and technology, setting out a warning to firms considering outsourcing services.

He explained: “When it comes to using technology and buying in support services from external firms you need to remember you can outsource the skills and expertise but you cannot outsource the responsibility. The end result in terms of the advice you give to your clients still sits with the regulated firm.

“If you are outsourcing to specialist firms you want to know they are competent to provide services to you that you are buying into. It would be sensible to undertake due diligence on those suppliers to see that they are able to provide the services they claim to.”

Percival added that the FCA would be considered unusual in the regulatory space for the level of support and encouragement it is giving firms around technology.

He said: “We approach the subject of technology as an area of possible risk. It is interesting that we look at technology as a way of benefitting the end consumer so we are very actively involved in supporting and encouraging technology within the sector.”

The FCA launched its robo-advice unit in May, following a recommendation in the Financial Advice Market Review, and it also runs the regulatory “sandbox” for firms to test ideas. In addition,it has an innovation hub that has received 515 requests for support in the 16 months it has been open. Of those applicants, 271 have received direct support from the FCA to get their proposition to market.

Also speaking at the event was Finance and Technology Research Centre director Ian McKenna who identified an opportunity for robo-advice in the workplace.

He explained: “We are having many millions of consumers making long-term savings for the first time ever and the opportunity to reach those people on the subject of brand – if an employer has appointed an advice firm – that is an endorsement to their workforce.

“The firms that have the biggest opportunity – and will grab the lion’s share of the automated advice market in the UK – are those focusing on workplace pensions and savings. It is the perfect platform to leverage off.”


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