FCA Supports ‘Incubator’ for Robo-Advice

In line with recommendations made in the Financial Advice Market Review (FAMR) in March 2016, the FCA has announced that it will set up a specialist advice unit to deal with robo-advice firms which will allow companies to incubate new products and services without having to first meet all the normal regulatory requirements.

FCA has said that there is a ‘clear need for regulatory intervention’ to reduce the cost of financial advice and make it more accessible; as reported on DIY Investor (Cutting the Cost of Advice) FCA is to encourage the development of automated advice platforms – dubbed ‘robo- advisers’ in the US, where a large number already exist – in order to cut the cost of financial advice for less well-heeled consumers.

FCA launched Project Innovate in October 2014 as an initiative to encourage innovation in the interests of consumers and promote competition through disruptive technology and ideas; the new unit will operate in a similar way and will help firms to set up robo-advice, which replaces face-to-face financial assistance with computer guided help.

‘encourage innovation in the interests of consumers and promote competition through disruptive technology and ideas’

FCA has said that robo- advice would be subject to the same regulatory protection as face-to-face advice, but would be cheaper and more consistent for customers and would boost innovation in the financial technology – ‘fintech’ – sector.

The number of entrants believed to be eyeing the market, as well as banks that withdrew from delivering financial advice after a raft of miss-selling scandals, will have to meet FCA eligibility criteria; unauthorised firms can be granted access for ‘testing purposes’.

The regulator hopes that its initiative will reduce the time and cost of bringing new products to market in a bid to encourage firms to be innovative and to increase competition.

According to the FCA report, eligible firms will benefit from ‘individual guidance, waivers and no enforcement action letters’.

It continues: ‘Too often firms have to spend considerable amounts of money bringing innovation to market, not least because they must meet regulatory requirements immediately. This acts as a brake on developing new services and products and limits competition.  We want more firms to embrace innovation. We hope our sandbox will speed up the time it takes for new and innovative products to reach market and start benefiting customers’.

Its hope is that the industry will set up a not-for-profit company to oversee the initiative.

‘FCA wants to create a more clearly defined two-tier market’

FCA wants to create a more clearly defined two-tier market, with ‘advice’ on investments (defined as ‘personal recommendation’) continuing to be strictly regulated, but with general ‘guidance’, or ‘streamlined advice’, which does not include a full fact-find about the customer, more lightly regulated.

This is a sector that will undoubtedly see a flurry of activity as new propositions are brought to market and robo-advice may be looking for a low-cost, low-maintenance investment solution.