New FCA Advice Unit for firms investing in automation

As part of its ‘Project Innovate’, the Financial Conduct Authority (FCA) has set up a new Advice Unit.

The unit will provide regulatory feedback to firms developing automated models to deliver lower cost advice to consumers.

Specifically, it will focus on any models that aim to fill gaps in three key areas:

  • investments
  • pensions (accumulation and decumulation)
  • protection

These are all areas that the regulator’s recent Financial Advice Market Review (FAMR) identified as needing improvement.

Firms with innovative advice models in other sectors can still apply for support via the FCA’s Innovation Hub.

Regulating automated advice

Automated advice – or ‘robo-advice, as it’s sometimes called – is a growing focus among financial services firms. It’s also high on the regulator’s agenda.

The FCA says that the Advice Unit ‘will work with firms developing models that provide a ‘personal recommendation’ or discretionary investment management services (‘managing investments’) for their clients.’

The regulator’s definition of automated advice ‘includes fully or partly automated online services and other models that use technology to deliver lower cost advice.’

Increasingly, banks and other financial firms are investing in automation as a lower-cost way of delivering consumer advice. It’s something the regulator is keen to explore too. The FCA’s first forum under the Project Innovate banner focused on robo-advice and the ways that firms can harness automation for the good of the customer.

What will the advice unit deliver?

The FCA will provide two forms of regulatory feedback to firms.

  • Any firm that meets the Advice Unit’s eligibility criteria will be given regulatory feedback on their specific model.
  • The regulator aims to use its work with individual firms to produce published resources for all firms developing automated advice propositions.

Why is the FCA encouraging automated advice?

The regulator has come out in favour of innovation in recent months. Its Project Innovate is proof that the FCA believes there are better, more efficient ways to deliver financial services – often involving new technologies.

Working out how firms can harness innovation in a compliant way is one of the regulator’s priorities. The recent consultation paper on outsourcing looked to clarify how the regulator should approach outsourcing for the firms it governs – with a particular focus on the potential of cloud technologies for financial services.

From a compliance perspective, anything that makes firms’ processes more efficient, slicker and less reliant on manual intervention (and the resulting opportunity for error) is something that should be explored.

Many banks and other regulated firms are already realising the benefits of automated processes when it comes to marketing compliance. It wouldn’t be a huge leap to extend this to the customer, automating advice to provide a lower-cost, more efficient and more compliant model.

How do firms engage with the Advice Unit?

Since 31 May, eligible firms have been invited to apply to the Advice Unit.  Any firm developing an automated advice model that can deliver lower cost financial advice to consumers can apply by completing an application form on the FCA’s website.

They need to use the form to explain why and how their model meets the criteria. Applications need to be in by 1 July 2016, and the regulator will contact firms during August to let them know if they have been successful.

The application process will be reviewed after the initial application period, to fine-tune and decide how it should work ongoing to meet industry demand.

How can I find out more?

The regulator’s website has more information on the advice unit, which firms meet the criteria, and how to apply.

If you would like to find out more about how automation can help make compliance processes more efficient, you can read Perivan Solutions whitepaper on the benefits of automated workflows for compliance teams. You can download your free copy here.

Author: Steve Coleman – Perivan Solutions.

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