What do mystery shopping and digital advice have in common? ASIC

Digital advice: ASIC provides guidance on AFSL compliance

One of the biggest innovations in recent years within the Financial Services industry is the introduction of digital or ‘Robo’ advice – that is, the provision of automated financial product advice using algorithms and technology without the direct involvement of a human adviser.

In response to queries from market participants, ASIC has released RG 255: providing digital financial product advice to retail clients (RG255).

Unlike the fintech industry it is seeking to assist, ASIC’s latest Regulatory Guide is far from cutting edge. RG 255 is really just a summary of existing ASIC Regulatory Guides designed to group some of the issues that businesses providing digital advice to retail clients need to consider – from initial AFS licence conditions through to ensuring ongoing compliance.

There are a few key takeaways from RG 255 that the industry will find useful. In particular:

  • how ASIC will consider an AFS licence application for digital advice and criteria it will look for;
  • how the ‘organisational competence’ obligation applies to digital advice licensees;
  • factors to consider when outsourcing the technology component;
  • risks associated with cyber security, and methods to maintain your cyber integrity;
  • guidance on stress testing of algorithms; and
  • how AFS licensees could meet the best interest duty when providing scaled advice.

Far from being prescriptive, ASIC has taken a consultative approach in developing its guidance in RG 255 and recognises that the activity of digital advice is fluid and rapidly evolving. ASIC has invited the industry to consult with it on other ways (other than those outlined in RG 255) that they may achieve compliance in what is a rapidly changing environment.

ASIC mystery shopper exercise results in the banning of Responsible Managers

ASIC often reminds industry that it undertakes surveillance activities but it is not often that the regulator provides details of these activities and the resulting enforcement action. However, the recent banning of two Responsible Managers from The Sharemarket College (TSC) did provide a working example of ASIC’s surveillance activities.

Posing as potential investors, ASIC undertook its surveillance on TSC and during that surveillance, TCS shared with ASIC’s investigators stories of its own success when trading on the share market.  One particular story it shared was a real investment portfolio it operated with a capitalisation of $100,000, which was achieving returns of 60 per cent per annum. The TSC made representations to ASIC’s investigators that results like this could be achieved by enrolling in TSC training courses.

ASIC’s investigation established there was no investment portfolio and that the claims were false and misleading. ASIC also found that TSC had made similar claims about the investment portfolio and the returns achieved to members of the public.

As a result, ASIC has banned two Responsible Managers of TSC for a period of three and four years respectively for the following:

  • making misleading or deceptive statements in relation to financial products and services;
  • acting outside their AFS licence conditions by providing personal advice when they were only authorised to provide general advice; and
  • failing to maintain competence to provide financial services authorised under it AFS licence.

How CompliSpace can help

Australian Financial Services Licence holders are inundated with a raft of corporate governance obligations and an ever-growing compliance burden, which can easily distract focus away from core business activities.

CompliSpace delivers industry specific web-based policies, programs and procedures that can be quickly tailored and configured to suit an organisation’s needs and are kept up-to-date with legal and regulatory changes by our team of specialists.

Our team of compliance professionals and lawyers combine extensive expertise with practical technology-enabled solutions to simplify the complexity of the regulatory environment and allow our clients to focus on allocating resources toward improving financial performance.

Please contact James Cozens to discuss your AFSL requirements further.

This blog is a guide to keep readers updated with the latest information. It is not intended as legal advice or as advice that should be relied on by readers. The information contained in this blog may have been updated since its posting, or it may not apply in all circumstances. If you require assistance or advice please contact us on (02) 9299 6105 and we will be happy to assist.

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