Chinese regulators move to ensure ‘investment robots’ are not excluded from financial oversight

The inclusion of robotic investment advisers in China’s regulatory framework for its US$15.4 trillion asset management business reflects how quickly watchdogs are closing regulatory loopholes when it comes to technology-driven financial innovations, analysts said.

In the new set of draft rules covering the country’s asset management market, top financial regulators have designated one of the 29 articles to robo-advisers, or artificial intelligence-driven programs that provide investment tips.

The move is part of sweeping new changes that will impact banks, insurers, brokers, and trust companies offering assets management products, whose combined value reached 102 trillion yuan (US$15.4 trillion) as of the end of 2016.

The tighter regulation of robo-advisers is expected to enable the orderly and healthy development of an emerging industry which could become mainstay of the finance industry of tomorrow, analysts said.

“It is a forward-looking step from the regulators as they quickly learn the previous lessons of falling behind the curve when supervising internet financial companies,” said He Fei, a senior researcher at the Bank of Communications in Shanghai. “The regulations won’t stifle the emerging business. Instead, it is a necessary move to rein in risks and guide its growth in a proper way.”

Financial institutions are required to gain regulatory approval for such new services. They will also be required to disclose to regulators the algorithms, financial models, and logic used in asset allocations, according to the draft rules jointly released on Friday by the central bank, as well as the top banking, insurance, securities and foreign exchange watchdogs.