A start-up that wanted to enter the automated advice space was told it would have to ask consumers 247 questions to comply with regulation, the economic secretary to the Treasury said, as both the government and regulator promised to develop a ‘sandbox’ for innovation in this space.
Speaking this morning (30 September) at the Financial Conduct Authority’s ‘robo-advice’ conference, Harriet Baldwin said the ‘sandbox’ could be a “safer space” for firms to experiment with ideas for consumers without the full burden of regulation.
“Once this is up and running it could help test potential ‘robo-advice’ models,” she added.
Ms Baldwin re-iterated the government’s desire to make the statutory environment appropriate, “knocking down barriers to entry”, citing one start-up that wanted to enter the advice market and was told its automated service would have to ask consumers 247 questions to comply with existing regulation.
She pointed out that fear around the repercussions of innovation might be one of the reasons that the UK has lagged behind the US in this area.
“There are some tricky legal boundaries to overcome, but the sandbox should be the place to help build our booming Fintech sector.”
Christopher Woolard, the FCA’s director of strategy and competition, commented that competition in the space was crucial and new entrants were being encouraged via Project Innovate.
“The question is, where do we draw the boundaries, there has to be a distinction between regulatory sanctions and how you put those who take part in any ‘sandbox’ experiments back in the right place should they go wrong.”
This would, of course, require informed consumer consent from the outset, noted Mr Woolard, adding that the automation of advice could either be a compliance dream or a mass scale nightmare.
Covering the combined Financial Advice Market Review - for which a formal consultation is expecting in the next couple of weeks - Ms Baldwin called on the industry to make suggestions as well as raising problems with the issue of automated advice.
In August, the government and the FCA rolled out a review, which is currently gathering evidence, will examine the regulatory or other barriers firms may face in giving advice and how to overcome them.
Also under the spotlight will be ‘robo-advisers’ and the opportunities and challenges presented by new and emerging technologies to provide cost effective, efficient and user friendly advice.
It will also explore how to encourage a healthy demand side for financial advice, including addressing barriers which put consumers off seeking advice.
Proposals are set to be published in the autumn, with final proposals set to be produced ahead of Budget 2016.