Robo-advice gains ground overseas

Technology is not going to stand still and neither should we. For example, robo-advice, or advice by computer programme, is gaining ground around the world.

In New Zealand, the law as it stands is clear — personalised financial advice can be given only by a human. Law reform to change that is under way, but we’re exploring ways in which we could enable roboadvice earlier.

The example of robo-advice highlights that one of the most interesting challenges we face is regulating technological innovation in financial services — Fintech in shorthand. There has always been a close relationship between technological change and financial markets, but what has changed is the speed of that change.

The ever-increasing pace of technology change poses challenges to businesses. No-one wants to be Betamax. Fintech is about partnership as much as disruption. Innovation is as likely to come from an incumbent as a start-up.

There are huge opportunities and risks with this innovation. Platforms like crowdfunding enable investors to get behind early-stage companies and small businesses to raise capital.

The downside is the greater chance of business failure in that sector catching naive investors by surprise, as well as the risk of misselling and fraud.

Financial institutions around the world are looking at distributed ledgers or Blockchain. These technologies can reduce the cost of services like international transfers by creating a reliable and traceable record agreed by all parties in the chain.

But the risks of money laundering, fraud, data theft and traceability remain.

Our Strategic Risk Outlook published earlier this year makes clear that the potential benefits of Fintech are worth pursuing. However, the risks must be acknowledged and managed well.