Automated advice and social media remains unchartered domain
Regulators around the world are still trying to grapple with the unique challenges of regulating the use of mediums like social media and automated advice by intermediaries, according to a report.
The International Organisation of Securities Commissions (IOSCO) published its Report on the ISOCO Social Media and Automation of Advice Tools Survey, which showed the adoption of social media and automated advice tools in many parts of the world are in its nascent stages and it is too early to chart out best practice frameworks in the use and oversight of the mediums.
The report said intermediaries around the world are using automated advice tools to help with their suitability and Know Your Customer (KYC) obligations.
Most of them use it for asset classes, and among specific products, collective investment schemes, mutual funds, exchange traded funds and equity classes are most common.
With automated advice, the Australian Securities and Investments Commission (ASIC) refer to automated tools in terms of guidance on the provision of information and disclosure to customers, noting that intermediaries have an obligation to ensure proper disclosure to customers who use their automated advice tools.
ASIC also lays out guidance on assessing the suitability of advice to a client, saying that if a firm’s computer model digs information on a customer’s circumstances, the automated advice should assess all of the client’s information before deciding on the advice suitability.
This links back to current “know your customer” rules and processes, and is suitable to the design of automated tools.
In terms of social media, no regulator has defined it yet, nor have they taken steps to collect information from intermediaries on how they are using social media in their businesses.
ASIC said constraints on social media services like Twitter, which has a 140 character limit, could limit its use for some types of business communications.
“For example, if the content of a communication triggers the need for a specific risk warning, compliant communication by character-limited media such as Twitter will not be possible, unless hypertext links to other communications containing the warning are permitted,” the report said.
While the report could not draw definite conclusions on best practices, it said the study was still useful going forward to flesh out a list of best practices for regulators to consider executing better regulation on social media and automated advice.
Twenty one regulators from around the world participated in the survey including Australia, the US, Canada, Hong Kong and Singapore.
AUTHOR
Malavika Santhebennur
Recommended for you
ASIC’s enforcement action is having an active start to the new financial year, banning a former Queensland financial adviser for 10 years in relation to fees for no service conduct.
ASIC has confirmed the industry funding levy for the 2024–25 financial year, and how much licensees can expect to pay.
Australian licensees are expected to make greater use of custom model portfolios for their clients, according to State Street Investment Management, following in the footsteps of US peers.
Adviser Ratings has argued that it’s time for more advisers to utilise digital engagement tools available to them as a disconnect grows between consumers seeking advice from finfluencers and from professionals.
