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Paper Explores a Regulatory Framework for Robo-Advisors

An academic paper takes on the challenges that digital advice poses for financial market regulators and seeks to present guidelines for regulators. The authors observe that: “automated personal financial management services creates significant opportunities and risks for consumers that regulators across the financial services spectrum have yet even to assess” and includes in those challenges: privacy and cyber security; developing the capacities to assess the algorithms and data incorporated in the digital advisors; the choice architecture through which the advice is presented and acted upon; and the underlying information technology infrastructure. The paper seeks to identify “core technical components” of robo-advisors that regulators need to understand and develop procedures to assess. The authors write that their “objective is to sketch the early stages of a regulatory trajectory that regulators can follow as robo advisors develop in sophistication and scale.”