A discussion paper on automation in financial advice has been published by the Joint Committee of the European Supervisory Authorities. The Discussion Paper sets out a preliminary high-level assessment of the potential benefits and risks of automation in financial advice and seeks feed-back from stakeholders on this assessment. The ESAs have published the Discussion Paper with a view to determining at a later stage which, if any, regulatory and/or supervisory actions may be needed to mitigate the identified risks while at the same time harnessing the potential benefits.
The Discussion Paper was prompted by the continued increase in the digitalisation of financial services across the banking, insurance and securities sectors. According to the ESAs, while currently the automation phenomenon is not equally widespread across each of these three sectors or across all EU jurisdictions, it is an innovation with growth potential. Consequently, regulators need to better understand and harness its potential benefits, and also identify risks before they materialise in the form of consumer detriment or a reduction in market confidence.
The Discussion Paper outlines the main characteristics of automated financial advice tools, as observed by the ESAs, and gives a preliminary assessment of the potential benefits and risks associated with the phenomenon of automation under the categories of consumers and financial institutions. It concludes by presenting an overview of automation and the possible evolution of the market.
The ESAs acknowledge that the existing framework of applicable European and national legislation might, to an extent, mitigate some of the risks arising from automation. However, they also comment that the phenomenon of automation has emerged against a background of lack of legislative clarity and inconsistent regulatory treatment across the banking, insurance and securities sectors.
The ESAs welcome comments from interested parties on the Discussion Paper by 4 March 2016.
The Discussion Paper may be accessed here.