The Joint Committee of the three main European Supervisory Authorities (ESAs) – 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.
“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 state 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.
Broad impact
The ESAs believe that automation of financial advice is not yet very widespread across European Union though they noted that human contact is being increasingly supported by the use of various automated tools.
“These include comparison websites that can compare products offered by various financial institutions, and websites providing information on specific products and helping consumers to select between products by using simulators and calculators.
“The use of such tools has been observed in relation to products such as mortgages, personal loans, bank accounts and bank deposits.”
“These tools may allow consumers to finalise a purchase, conclude a contract, or act as intermediaries which, after giving recommendation, help the consumer to get in touch with the financial institution offering the given products or services.”
The ESAs expect that automation in financial advice will continue to grow in the near future, including a proliferation of more sophisticated tools and an increasing integration of different data sources. However, their use may not be equally widespread in all European markets.
The ESAs are look for comment on the area and have set a closing date for responses of 4 March, 2016.
