Hong Kong’s investment watchdog suggests curbs on robot advisers and online trading platforms

Robot-driven and online financial advice needs greater transparency, says new SFC guideline

PUBLISHED : Wednesday, 28 March, 2018, 10:29pm
UPDATED : Wednesday, 28 March, 2018, 10:30pm

Online share trading platforms and financial firms using so-called “robo advisers” instead of human beings are facing more curbs from Hong Kong’s Securities and Futures Commission (SFC), according to a revamped guideline document issued on Wednesday night.

It is hoped the clarifications offered within Guidelines on Online Distribution and Advisory Platforms, “will facilitate the growth of online platforms, giving investors greater choice of products and advice”, said Ashley Alder, the SFC’s chief executive.

It is the result of a consultation carried out in August last year, and the measures should be implemented next year, he added.

The main crux of the recommendations involve demands for better transparency and the implementation of more restrictions, in an effort to better protect the interest of retail investors.

“The guidelines represent a balanced regulatory approach,” Alder said.

“They allow more flexibility for investors to manage their investments online, whilst providing them with additional protection in relation to complex products whose features and risks retail investors may have difficulty fully understanding.”

A number of respondents also highlighted in August that some technology tools that are not client-facing, should not be included under the definition of “robo-adviser”, which the commission has accepted, and has asked that their definition be made clearer.

Descriptions on how the underlying algorithms behind how such tools work are now likely to be required, however, and if they have any limitations. 

One respondent was reported to have opposed such an approach as “it will require platform operators to give away their trade secrets”, but the SFC said it refused to accept the argument.

“The focus of the requirement is that clients are provided with information which enables them to assess whether to use the services of robo advisers,” the SFC said in a statement.  

“Disclosures must be clear and easy to read, and overly technical terms should be avoided.”

The commission said it will also now add more requirements on how online platforms sell products, after the consultation revealed some operators wanted to clarify whether overseas platforms that do not have Hong Kong operations, need to apply for a local operating licence.

It added, that requirement will depend on what kind of products are being sold, and their complexity.

For example, a fund distribution platform is likely to need a licence if it is actively marketing a product to the general public in Hong Kong, whether they are offered online or not.