Artificial Intelligence regulation for private pension advice

Artificial Intelligence regulation for private pension advice
Artificial Intelligence regulation for private pension advice

Article by Phil

Artificial Intelligence regulation for private pension advice

The use of Artificial Intelligence (AI) for private pension advice and other financial services has been on the rise for some time now. We’ve recently reported on the story that an AI fund manager is supposedly outdoing the market with its investments.

It seems that the FCA has now recognised that this might become a risk for consumers. So, in their latest speech the head of the FCA has outlined plans to regulate the use of AI within financial services.

Whilst the FCA has said that it doesn’t regulate technology, it does regulate “critical third parties” which is how it describes AI.

There may be many ways in which AI will benefit financial services. Especially in terms of opening up private pension advice to the mass market by reducing cost. But there are serious concerns about AI being used to commit cybercrime, in particular investment fraud. It is in this area that FCA needs to get involved with the regulation.

They continue to be kept busy by technological advances. Including social media where they have clarified what firms need to do in terms of financial promotions. Including:

  • A reminder that anything which invites or makes an offer to engage in an investment will class as a financial promotion.
  • That includes any private chatrooms
  • All messages must be fair, clear and not be misleading.
  • More complicated financial offers, like private pension advice will need to include risk warnings and links to further information.
  • A ban on any incentives to invest in cryptocurrency – coming into force from October.
  • Plus, a 24-hour cooling off period for any crypto investments.

The FCA scan over 100,000 websites every day looking for financial promotions which may be non-compliant. Last year that led to over 1,800 alerts being issued to firms to review their promotions. The activity led to 8,500 financial promotions being withdrawn according to their data.

They are particularly concerned about so called fin influencers online, promoting financial products in return for commissions and other introduction fees. The Advertising Standards Authority (ASA) is also getting involved in the enforcement side alongside the FCA.

For example, the ASA has just intervened to pull a TV advert being run by Age Partnership. The advert which ran in April suggested that the Age Partnership equity release scheme was approved by solicitors. In fact solicitors are not allowed to make financial introductions. So the ASA found it misleading to suggest that solicitors were involved in the promotion. Age Partnership have accepted the decision and will be amending further adverts.

More needs to be done however to reduce the number of online scams.

Especially Authorised Push Payment (APP) scams which cost customers almost £500 million last year. Theses are scams where fraudsters persuade customers to transfer money into their accounts voluntarily. Sadly, these scams often involve fraudulent investment offers, or private pension advice and large sums of money.

At the moment Banks don’t have to repay the money in these types of scams, thanks to a recent legal ruling. It’s still the customers responsibility if they authorise the payment.

However, the FCA is stepping in with a voluntary code including all the Banks, to repay victims. Especially where the customer has realised their mistake and tried to recall the money.

With the ever-expanding remit for the FCA, including social media, crypto and the new Consumer Duty, the government has decided to ask the National Audit Office (NAO) to investigate. The NAO will be looking at the way in which the FCA operates to determine whether it is fit for its new extended purpose. I can imagine there will be may industry watchers who would say that it hasn’t been working effectively for some time. Especially considering the number of issues customers have faced with the likes of failing SIPP’s, scams and frauds etc.

But there are also wider concerns about the effectiveness of regulation. For example, the Senior managers Certification Regime (SMCR) was introduced by the FCA back in 2016 in order to make senior managers more accountable for the running of financial services firms. This involved a lot of work by firms to put new systems and controls in place, plus more reporting requirements. It turns out that in the last six years the FCA has only brought one case against a firm for not abiding by the rules. Despite the number of firms who’ve failed over the same period.

Artificial Intelligence regulation for private pension advice
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