​​Daily Review: First Financial Markets Authority Approved Robo-Advisor Launches in New Zealand

The designers of robo-advisor technology and the regulators of robo-advisor technology have a ways to go before robo-advisors reach their potential and deliver high-quality advice to a mass-consumer market across a broad range of financial services. Nevertheless, it is not too early to begin thinking about what comes next.

For that purpose, it is useful to assume that regulators will develop the capacity to confirm that robo-advisors do what their creators and operators say, based on access to data of adequate quality, and that regulators will gain the authority to remove from the market robo-advisors who cannot or will not prove their capabilities to regulators.

That means that, in the near future, consumers will have access to well-designed robo-advisors that honestly and competently recommend suitable financial products for consumers across the entire spectrum of financial products, employing appropriate choice architecture and reliable information technology infrastructure. – Regulating Robo-Advice Across the Financial Services Industry, The University of Pennsylvania Law School

As incumbents move towards innovation and startups move towards scale, heating up the robo-advisor race, the revision of regulatory environment around investment products is inevitable. With increased investments in developing WealthTech/InvestTech products by financial institutions and by the startup community coupled with changing financial behavior and growing adoption, an increasing number of individuals around the world are exploring the concept of long-term oriented wealth management.

There is a major turn-off for personal wealth management tools, however. In the US, for example, FDIC-insured products are limited to:

  • checking accounts,

  • negotiable order of withdrawal (NOW) accounts,

  • savings accounts,

  • money market deposit accounts (MMDAs),

  • certificates of deposit (CD) and other time deposits, and

  • official items issued by a bank (such as cashier’s checks or money orders).

FDIC, however, does not insure non-deposit investment products, even if they were purchased from an insured bank, including:

  • annuities

  • mutual funds

  • stocks

  • bonds

  • government securities

  • municipal securities

  • US Treasury securities

Robo-advisors by financial institutions, hence, always have a note: Brokerage Products. Not FDIC-Insured. No Bank Guarantee. May Lose Value.

Meanwhile, counties countries continue to grow wealth on national and individual levels, and an increasing number of individuals are getting plugged into the formal financial system, exploring financial products. Whether individuals are informed about the risks involved in using popular robo-advisory tools or not, those risks exist, both inhibiting the adoption with consumers, and promoting possibly loose practices in building and operating automated investment products.

To ensure safe and stable adoption of innovative investment products, the regulatory framework has to change for financial watchdogs to participate in innovation adoption in wealth management sphere. More importantly, the consumer stands to win, as government-insured solutions will bring the best of breed to the market and allow individuals to safely explore new financial products, enhancing long-term resiliency to unexpected hardships and overall, improving their financial health.

Pick #1. Kiwi Wealth Gets Country’s First Robo-Advice Approval

Kiwi Wealth has become the first financial services provider in New Zealand to be approved by the Financial Markets Authority (FMA) to deliver personalized digital financial advice.

Kiwi Wealth has spent the past three years developing its advice platform for its Kiwi Wealth KiwiSaver members.

The upcoming Future You robo-advice release scheduled for June will give members of the Kiwi Wealth KiwiSaver Scheme personalized advice on which investment fund in the Kiwi Wealth KiwiSaver Scheme would best suit them based on their retirement income goal. The feature will be released to an initial group of members to obtain feedback, before being released to all eligible members.

That might seem a fairly straight-forward piece of advice but it’s advice that, under current legislation, could only be given by an authorized financial adviser – a human. – Joe Bishop, Kiwi Wealth General Manager Customer, Product and Innovation

And humans will have ultimate oversight of robo-advising, says Mr. Bishop.

The FMA’s exemption application process demanded we demonstrated total control and capacity – from technical expertise, software, and infrastructure through to personal data security and quality assurance. – Joe Bishop, Kiwi Wealth General Manager Customer, Product and Innovation

Read more.

Pick #2. HSBC Says Performs First Trade Finance Deal Using Single Blockchain System

HSBC has performed the world’s first (as the company claims) trade finance transaction using a single blockchain platform. HSBC and Dutch bank ING completed the deal for Cargill when a shipment of soybeans was transported from Argentina to Malaysia via the global commodities trader’s Geneva and Singapore subsidiaries. The Cargill transaction marked the first use of a single, shared digital application rather than multiple systems, HSBC said. The transaction was executed on a Corda platform, which was developed by R3.

Putting all of Asia Pacific’s trade-related paperwork into electronic form could slash the time it takes to export goods by up to 44% and cut costs by up to 31%.

The reason why letters of credit have persisted is because of two real challenges — the absence of digital infrastructure and the challenge of coordinating multiple parties. This platform helps us overcome the first and I think the technology and everyone focused on it gives us the impetus to go after the second now with hopefully much better results than we have seen in the past. – Vivek Ramachandran, global head of innovation and growth at HSBC’s commercial banking unit

The blockchain application used in the Cargill transaction is supported by 12 banks.

Read more.

Pick #3. Nearby Friends: Pay Your Friends on Monzo Instantly

May 8, 2018, Monzo announced a Nearby Friends feature, allowing individuals to pay someone without having the recipients’ phone number. Using Bluetooth, users can see anyone else that uses Monzo nearby and has the feature enabled. Monzo is using Google Nearby, an API service that allows users to send messages to other devices near.

Here’s how it works as Monzo describes it:

  1. When you open Nearby Friends, we send an anonymous token (a random string of text) to Google;

  2. That token is broadcast via Bluetooth to devices nearby;

  3. At the same time, your Monzo app starts searching for other devices near you;

  4. When your Monzo app discovers a device nearby, it receives the device’s token. Using the Monzo API, it exchanges that token for your friend’s name and profile picture;

  5. We also receive an identifier which we can use to work out who to make the payment to.

Read more (+similar feature introduced by Revolut).

Pick #4. Paytm Introduces Automatic Recurring Payments

Paytm introduced automatic recurring payments, a new feature that lets users configure the payments app to pay for periodic recurring expenses automatically. The My Payments feature can be used for high-value payments for a variety of cases.

The company expects the feature to significantly boost bank-to-bank transactions on Paytm, which it sees crossing USD $8.83 billion a month by December. Currently, Paytm processes about 1 billion transactions every quarter.

Read more.