The KNF (PFSA) sets requirements for robo-advisers

The KNF Office notes that investors are increasingly confused in the face of the dynamically growing number of financial instruments. This becomes the direct cause of the development of the field of robo-advisory. Referring to the definition contained in the KNF Statement … „[…] robo-advisory is a process in which giving and transmitting recommendations takes place with the use of algorithms, automatic and semi-automatic systems. The essence of the robo-advisory service is the use of an algorithm to analyze and assign financial instruments to the client’s profile. The level of complexity of the algorithm used is irrelevant, for example, whether it uses artificial intelligence (AI) or other statistical tools to analyze big data sets (Big Data). „

In view of the development of the robo-advisory sector, the PFSA issued the following recommendations to entities operating in this industry:

• When selecting financial instruments, the investment firm should take into account the condition of the suitability of the financial instrument for its addressees, the qualitative characteristics of the instrument and the ability of the investment firm to obtain information in order to correctly assess the suitability of financial instruments for the client. The scope of a robo-advisory service should always ensure that a financial instrument is selected from a sufficient number of financial instruments.
• Robo-advisory requires the investment firm to create a well-configured and tested algorithm for assessing the suitability of a financial instrument or service. The investment firm should adopt mechanisms to detect inconsistencies in the client’s responses. The suitability assessment process can use solutions that will allow the customer to go through the assessment process in a friendly manner.
• Authorized employees should be involved in the entire substantive process of providing a robo-advisory service. However, they do not have to have knowledge and competences in the field of IT, but those that will allow them to understand the essence of the process (solution). The participation of an authorized employee is not required for activities constituting the technological aspect of robo-advisory.
• The investment firm should provide information in an accessible and reliable manner on the method of providing robo-advisory services. For this purpose, it may use functionalities supporting the display of website content, including those that attract the user’s attention. It should also provide the client with contact with the employee.
• The standard contract on the basis of which the robo-advisory service will be provided, should take into account its specificity and nature. The key is to precisely define the obligations of the investment firm at each stage of the service provision.

The full text of the UKNF position is available at:

https://www.knf.gov.pl/aktualnosci?articleId=71304&p_id=18