Part II/II of this summary presents the most important pillars of the KNF’s position on robo-advisory services in Poland.
1. An investment company should exercise due diligence in assessing the feasibility of implementing the business objectives of the robo-advisory services in light of the regulations governing brokerage activities before deciding to introduce the robo-advisory services. This means that three components must be taken into account:
- algorithmic suitability test [process of gathering information from the client];
- automated evaluation of financial instruments carried out in accordance with the algorithm;
- automated, consistent with the algorithm comparison of the client’s investment profile with relevant selected financial instruments and recommendations of investment behaviour.
2. When selecting the financial instruments for robo-advisory services, the investment company should take into account the suitability of the financial instrument for its recipients, the quality characteristics of the instrument, and the investment company’s ability to obtain information to assess the suitability of the client.
3. The scope of the robo-advisory service should always provide a choice between a sufficient numbers of instruments. KNF points out that, although the offer of robo-advisory services is currently limited to simple financial instruments, the requirement of quality parameters (e.g. high liquidity compared to resistance to high variability) has been observed. However, to avoid distorting the essence of the robo-advisory services, which is the selection of an appropriate instrument from among the instruments collected in the catalogue, this catalogue should group so many financial instruments as to guarantee a free choice.
4. An investment company should have a well-configured and tested algorithm for assessing the suitability of a financial instrument or service. The adopted mechanisms should make it possible to detect contradictions in customer responses. The suitability assessment process can use solutions that will make the client’s transition through the assessment process more accessible.
5. Authorised employees play a key role in providing robo-advisory services from square one to the end. They must see the substantive essence of the process and can cooperate in its implementation with full commitment and understanding. The substantive essence of the solution should be separated from technical and technological IT competences, which are not necessary because purely technical activities do not require the participation of the authorised employees.
6. An investment company not only can, but should emphasise information about robo-advisory services on its available information channels, in particular on the website. Supporting the exchange of information using mechanisms that attract the attention of customers, such as pop-ups (pop-ups with additional messages) or tooltips (hover boxes with additional explanations that appear when the cursor hovers over a particular place) is highly welcomed.
7. The information message from the investment company on the subject of robo-services should be strengthened through an individualised relationship between the client and the employee concerned – so that the client knows who it can directly address for clarification and where it can get it from. An uncomplicated and effective customer support tool is the chatbot functionality.
8. The rules for the provision of the robo-advisory services should be specified in the regulations or contract with the client. The model contract used by the investment company should be comprehensive, complete, and clear, and should adequately take into account and reflect the specific nature of the robo-advisory services. The model contract should specify the obligations of the investment company at the various stages of the robo-advisory services.
9. Obligations arising from the provisions of the GDPR on entrusting the storage and processing of data concerning the provision of robo-advisory services may be outsourced by means of qualified outsourcing. Sub-outsourcing (Article 81f of the Act on Trading in Financial Instruments) may be referred to when a software provider stores and processes data related to the provision of robo-advisory services by an investment company and at the same time uses cloud computing. An investment company may use sub-outsourcing to a limited extent due to legal constraints:
- It is not possible to create multi-level further entrustments;
- It is reserved for activities which are not the core of the activities commissioned by the investment company.
10. The employees of the compliance unit should have the competence to assess the reliability of the investment company’s robo-advisory services. Employees are not obliged to have qualifications equivalent to those of employees dealing with investment advice in the strict sense, but to have the knowledge to understand the essence and specifics of the robo-advisory process at all its stages and to construct criteria allowing for a real assessment of the correctness of its shape and course.