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Payments & FinTech Lawyer

RBS enters the robo-advice arena with NatWest Invest

The Royal Bank of Scotland (‘RBS’) launched on 20 November 2017 an automated online investment service - the NatWest Invest platform - which it claims makes it the first high street bank to offer a robo-advice service in the UK. NatWest Invest will charge £10 plus fees to invest, and will be open to customers with the relatively low amount of £500 to invest as a lump sum. “This signals the long-awaited entry of incumbents into a developing market that is being supported by policymakers and legislators,” comments Adrian Shedden, Head of FinTech at Burges Salmon LLP. “Of course, this all coincides nicely with PSD2 and Open Banking going live in January 2018. A cynic might say this is high street banks making a last minute play for customer retention before platforms are armed to facilitate their services using Open APIs.”

Many commentators point to the Retail Distribution Review, measures designed to enhance transparency and professionalism in the investment sector which were introduced in December 2012, as resulting in a financial ‘advice gap’ as such measures drove banks from the UK market. The March 2016 final report of the ‘Financial Advice Market Review,’ conducted by HM Treasury and the FCA, described this ‘gap’ as ‘situations in which consumers are unable to get advice and guidance on a need they have at a price they are willing to pay.’ “The regulators knew they would create that [advice] gap when they banned commission, but they thought it would be better to ban commission and create the gap, than to leave things as they were,” said Chris Finney, Partner at Fox Williams. “Since then, the challenge has been around how best to fill that gap. Robo-advice will certainly help with that. But it’s a medium-term play. Relatively few consumers are aware of these services, and trust is still an issue.”

In a conference speech delivered on 11 October 2017, Bob Ferguson, Head of Department at the FCA Strategy & Competition Division, described robo-advice as a “big opportunity” that “can help mitigate some of the risks associated with human advisers and managing a large salesforce” but one with risks including that “a poorly designed model could lead to systemic mis-selling.”

“Regulators globally are concerned that robo-advice risk profiling may be inaccurate and that the tools may contain errors which are not easily identifiable and result in inappropriate advice,” explains Tim Wright, Partner at Pillsbury LLP. “Other risks include the potential for consumers to be confused about the scope of the advice on offer and, since the services are delivered over the internet, the potential of cross-border issues to complicate the regulatory environment as well as the overall risk profile. However, well-designed systems can reduce compliance risk.”

Mr Ferguson noted that the FCA’s focus is ultimately about outcomes. “The FCA is in favour of the promotion of robo-advice to provide competition and provide a low cost option to those in the advice gap,” said Jacqui Hatfield, Partner at Orrick. “The FCA will however closely review the model as part of its approval process and the outcomes. It has enlarged the focus of products to mortgages, insurance and debt counselling and providing guidance models. It is also including entrants who do not need to be licensed. It will be monitoring and assessing the sector over the next few months and will report on this.”

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