EC interrogates robo-advice as Mifid deadline looms

The European Commission is set to publish a study looking at online platforms and their impact on investor protection amid the rising popularity of robo-advice services.

Speaking at the Swiss Finance Council, EC director-general for financial stability, financial services and capital markets union Olivier Guersent warned  over the mis-selling risk associated with online distribution.

Under Mifid, the European Union directive that regulates investment advice, both face-to-face and online advisers are subject to the same conduct standards, especially with regard to suitability.

The rules for robo-advisers mean a suitability test with the client is required, demanding that firms provide retail clients with suitability reports from January 2018.

Guersent says: “Mifid II clarifies that the responsibility to undertake the suitability assessment lies with the investment firm providing the service and cannot be reduced by the use of an electronic system.

“Being aware of these rapid technological developments, we are exploring the
impact of online distribution on investor protection through a study.”

The study will look into how online platforms comply with conduct of business rules and online businesses address mis-selling risks.

The EC will consider whether further EU action is necessary, on the basis of the study outcomes.

Guersent is one of the co-chair of the financial technology task force, set up in November 2016 by the EC to bring together services responsible for financial regulation and for the “digital single market”.

In 2015 the European Supervisory Authorities, which look into different parts of financial services, also published a consultation paper on the risks of robo-advice.

It said: “The potential risks include the possibility that consumers could misunderstand advice provided to them without the benefit of a human adviser to support the advice process, and the potential for limitations or errors in automated tools that may not be easily identifiable for consumers of financial institutions.”

In January, Bank of England governor Mark Carney also warned that developments in financial technology such as robo-advice will pose a systemic risk if they are not monitored properly by regulators.