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Robo exemption a win for big providers

Former FMA senior solicitor Simon Papa considers plans to allow roboadvice ahead of the law changes.

Monday, July 31st 2017, 5:59AM

Cygnus Law made submissions on the FMA’s June 2017 proposal to use its exemption power to permit personalised roboadvice to be provided to consumers (currently such advice can only be delivered by humans).  In the submissions I’m highly supportive of an exemption and I commend the FMA for taking the initiative to propose it.

The roboadvice exemption is important, as a new law permitting personalised roboadvice is not likely to be in force for another 1-2 years.  Other countries, including Australia, Singapore, the United States and the UK, already permit personalised roboadvice and have developing roboadvice sectors.  NZ risks being dominated by off-shore roboadvice service providers in future if we don’t soon provide space for a domestic sector to develop.   Roboadvice has a number of potential benefits, including helping to close the “advice gap”.



FMA’s Proposal

FMA’s proposed exemption will allow roboadvisers to provide personalised financial advice on a limited range of financial products subject to low value caps.  There will be very little regulatory oversight of the new services- there will be no prior checks on the providers except in relation to “good character”.  I consider that the limitations and caps in the proposal would not fully mitigate the risks presented by the proposed “light touch” approach and would tend to strongly favour services provided by product providers.

FMA’s proposed exemption has some attributes of a “regulatory sandbox”.  That is an approach to regulation that supports the development of new and innovative financial services businesses by allowing them to provide financial products and services without having to meet all usual regulatory requirements.  There are allied restrictions to protect their customers.  While I support the implementation of a formal regulatory sandbox by the FMA, my preferred option is that businesses wanting to use the exemption obtain a licence. 

Cygnus Law’s Preferred Option

I think that any business wanting to use of the roboadvice exemption should be required to obtain, as the key condition, “qualifying financial entity” (“QFE”) status (or should update an existing QFE status to meet roboadvice service requirements).  Under that approach there would be no mandatory service limits or value caps- they would be decided on a case-by-case basis during licensing.  That approach will give FMA and consumers greater confidence in the quality of roboadvice services provided pursuant to the exemption.  It should not require too much effort to update the current QFE regime (including the FMA’s QFE Adviser Business Statement Guide) to support roboadvice licensing under the exemption.  FMA can recover its costs via the existing QFE application and variation fees.  A licensing approach is consistent with the existing financial markets regulatory framework, which requires businesses to obtain a licence before providing most types of financial services to consumers.

Regulatory Sandbox

Regulatory sandboxes have been implemented in other countries, including in Australia, Singapore and the UK.  However, while the FMA’s proposal has some attributes of a sandbox, it lacks key controls and support mechanisms that mitigate the risks arising when a regulatory sandbox is implemented.  For example, under the Australian regime existing licence holders cannot use the sandbox, ASIC assesses all applicants and there are limits on the number of customers (100) and length of time the business can operate using the regulatory sandbox (12 months).  I support the development of a regulatory sandbox in NZ but only for start-up businesses.  In the case of roboadvice this would provide a valuable “stepping stone” towards obtaining a full licence and would help to support the development of independent roboadvice services.

Tags: ASIC FMA QFE regulation roboadvice

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ANZ 5.79 5.05 ▼5.25 5.59
ANZ Special - 4.55 ▼4.75 -
ASB Bank 5.80 4.85 5.19 5.49
ASB Bank Special - 4.45 4.79 5.09
BankDirect 5.80 4.85 5.19 5.49
BankDirect Special - 4.45 4.79 5.09
BNZ - Mortgage One 6.50 - - -
BNZ - Rapid Repay 5.95 - - -
BNZ - Special - 4.59 4.79 5.09
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BNZ - TotalMoney 5.90 - - -
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Credit Union Baywide 6.15 5.45 5.50 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 - - -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 5.00 5.20 -
Housing NZ Corp 5.79 4.85 5.24 5.49
HSBC Premier 5.79 4.09 4.29 4.89
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 5.80 4.59 4.69 5.09
Kiwibank 5.80 4.95 5.29 5.59
Kiwibank - Capped - - - -
Kiwibank - Offset 5.80 - - -
Kiwibank Special - 4.45 4.79 5.09
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 6.10 5.10 5.45 -
Resimac 5.30 4.86 4.94 5.30
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RESIMAC Special 5.00 - 4.75 -
SBS Bank 5.89 4.99 5.29 5.59
SBS Bank Special - 4.59 4.85 5.25
Sovereign 5.90 4.85 5.19 5.49
Sovereign Special - 4.45 4.79 5.09
The Co-operative Bank - Owner Occ 5.75 4.59 ▼4.79 5.09
The Co-operative Bank - Standard 5.75 5.09 ▼5.29 5.59
TSB Bank 5.80 4.80 5.15 5.45
TSB Special - 4.55 4.79 4.99
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.95 4.99 ▼5.19 5.59
Lender Flt 1yr 2yr 3yr
Westpac - Capped rates - 5.26 5.36 -
Westpac - Offset 5.95 - - -
Westpac Special - 4.59 ▼4.79 5.09
Median 5.80 4.85 5.15 5.38

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