The Joint Committee of the three main European Supervisory Authorities (ESA) – EBA, EIOPA and ESMA – said on Friday it had launched a discussion paper on automation in financial advice because of the way these systems were changing the relationship between consumers and financial institutions.
“In this discussion paper, we recognise that markets are evolving and we want to open up the debate about this potential shift in the way financial institutions interact with consumers,” said Steven Maijoor, chair of the ESA Joint Committee,
Maijoor said the committee aimed to assess what, if any, action was required to harness the potential benefits of this innovation and mitigate its risks.
Automation growing
The three ESAs – the European Securities and Markets Agency (ESMA), the European Banking Agency (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) – said they had noted that a growing number of financial institutions were offering automated tools when providing advice or recommendations to consumers.
"Markets are evolving and we want to open up the debate about this potential shift in the way financial institutions interact with consumers."
“Our role as European Supervisory Authorities is to monitor new financial activities and to take action where appropriate.”
The discussion paper defines the concept of automation in financial advice as where a financial institution provides advice or recommendations to consumers without, or with very little, human intervention and relies instead on computer-based algorithms and/or decision trees.
It highlights potential benefits and risks associated with this particular innovation, and identifies the potential benefits of this kind of automated advice as lower costs, higher consistency of advice and a bigger number of customers that can be reached.
However, it states the potential risks include the inability of consumers to talk to a human advisor who can guide them through the process and provide clarifications, as well as the increased vulnerability to various types of IT failures.
“It should be noted that the primary focus of this discussion paper is on the phenomenon of the automation of financial advice, not on the provision of advice itself,” the paper states.
