Professional liability will never be automated

By Alain Castonguay | August 18 2016 07:00AM

Empire Life

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Robo-advisors signal an “important evolution” in the financial services industry, says Eric Stevenson, superintendent, Client Services and Distribution Oversight at Quebec regulator, the Autorité des marchés financiers (AMF). The distribution process may be increasingly turning to digital tools, but professional liability can never be automated, he insists. 

Stevenson spoke at a luncheon organized by the Cercle finance du Québec on June 15 in Quebec City. The theme of the conference was: “Robo-advisors: a disruptive innovation or natural evolution of the offer?” At a recent activity in Montreal, Stevenson used the term evolution alone to describe robo-advisors. “In Québec City, I was ready to show stronger commitment. I called this technology an important evolution in the offer to consumers,” he explains.

Stevenson points out that the whole regulatory framework was designed based on the concept of the advisor as a physical person. All new brokers who join the AMF now use the Internet, automation and digital tools to communicate with clients. They must also appear before the regulator in person to obtain a permit. 

“There is probably improved accessibility for the consumer,” he says, referring to the user-friendliness of the application and real-time access to their portfolio. The automated system is equally transparent. “It can even favour greater investor empowerment among young people,” he continues.




Protecting all clienteles

Donning his regulator cap, Stevenson points out that while there are diverse products and permits for portfolio managers, intended for different clientele, the AMF must protect everyone. He mentions the most vulnerable clientele like seniors, people with limited digital technology skills, or investors who need more complex vehicles. The AMF wants clients to be able to maximally benefit from opportunities on the market, while providing investor protection.

For securities, the regulatory framework is very strict, Stevenson adds. Regardless of the distribution channel, two fundamental principles remain: the need to know the client’s profile well and ensuring that products offered are compatible with the client’s situation, he explains. Compliance managers at each firm are in charge of ensuring that these principles are met. “In the end, a human being is responsible,” he stresses.

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Currently, 14 advisors registered with the AMF distribute products and services online. For now, hybrid models predominate, with varying degrees of human intervention. “We are quite flexible about distribution models. But for us, as in the rest of Canada, there will always be human intervention in the compliance chain. That’s how things are today.” 

The role of the AMF is certainly not to favour one distribution network over others, he adds, but rather to create a fair environment in which everyone can prosper. “There should be room for all, as long as consumers are well served and protected.” 

The current regulatory framework “does not offer unlimited adaptation capacities,” even if the AMF can impose particular conditions on each permit holder. The representative or advisor plays a crucial role when investors open an account. In September 2015, the Canadian Securities Administrators (CSA) and the AMF stated their expectations regarding portfolio managers that provide online advice.

The AMF consults the industry on these business processes, but consumers must always be able to talk to an advisor.

Three models have emerged in Canada:

  1. Systematic communication with the client;
  2. Occasional contact when the system detects a problem with the data transmitted by the consumer;
  3. No contact with the representative.

Although the third model is still very marginal, the regulator promises very close oversight of compliance with the two fundamental principles mentioned above. “Responsibility must always fall on a human being, it cannot be automated,” Stevenson insists.

“I must make sure that new emerging players understand the regulatory framework well and comply with it. We endorse evolution, but not if it weakens consumer protection.”

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