The Model Office Blog

RegTech, RoboTech and suitability

[fa icon="calendar"] Feb 7, 2017 12:57:36 PM / by Chris Davies

The problem with regulatory compliance and business development is it’s a bit like hurdling in the dark: you just don’t know if your strategy will protect against the constant stream of regulatory directives, compliance costs and market risks.

Indeed you cannot really replicate current tick box compliance methods in a digital format, it just re-creates the same problems – as Einstein said we cannot solve problems with the same thinking used when we created them, so a paper to paperless journey requires different thinking.

What is clear from the emergence of Robo-advice is the algorithms that power the platforms need to be fit for purpose. If the algorithm is flawed in any way whatsoever we than have the potential of misselling and misappropriated advice. With the financial services industry still languishing in last place on Edelman’s Trust index, this is a serious issue for FinTech and RegTech alike.

What is required is clear directives or a code of practice to be delivered by the FinTech participants, to ensure their ‘enabler tools’ are robust and do what they say they will. Indeed with a double lock regulatory landscape where we have the FCA’s advice suitability directive and MiFID II’s product appropriateness, technology is now in the regulatory and their customer protection agenda crosshairs. So what due diligence can the industry do?

  1. Ensure algorithms are evidence based and robustly tested during Beta stage
  2. Ensure that terminology used around client risk profiling is uniform and comprehensible
  3. Ensure the client digital and emotional journey is clearly and carefully mapped
  4. Ensure the Robo solution is suitable and appropriate to meet client on-going needs
  5. Ensure client informed consent is achieved and evidenced
  6. Ensure the clients capacity for loss is understood and verified by the client and the Robo-system
  7. Ensure client KYC and TCF steps are covered
  8. Apply all of above to the portfolio management and auto rebalancing process used

There are more but the crux to this is if the Robo cannot secure client informed consent then the red lights should flash and the process stops.

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Topics: Benchmark, compliance, client centric, Financial regulation, Financial business development, fintech, Human resource development, client engagement, regtech, Risk management, Soft compliance, practice management, FCA, Roboadvice

Chris Davies

Written by Chris Davies