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On February 23, 2017, the U.S. Securities and Exchange Commission (“SEC”) Division of Investment Management issued a Guidance Update for Digital Advisers (aka Automated Advisers or Robo-Advisers). In the Guidance Update, the Staff addresses Digital Advisers’ unique business models and certain compliance concerns with respect to the Investment Advisers Act of 1940 (“Advisers Act”). Specifically, Digital Advisers rely on algorithms, provide advisory services over the Internet, and offer limited direct human interaction to their clients. Therefore, Digital Advisers should consider certain risk areas, including:
Furthermore, the SEC’s Office of Investor Education and Advocacy issued an Investor Bulletin, which provides investors with the information they may need to make informed decisions when considering using a Digital Adviser platform. The Investor Bulletin describes a number of issues to consider including:
Prior to its Guidance Update and Investor Bulletin, the SEC previously addressed compliance risks with respect to Digital Advisers in its joint investor alert with FINRA on Digital Investment Tools in May 2015, at its public forum on financial technology (“Fintech”) in November 2016, and in its 2017 Examination Priorities issued in January 2017. The SEC has made it clear that it will focus on Digital Advisers and that such advisers should be prepared.
How Can ACA Help?
ACA is a leading global provider of regulatory compliance products, performance services, cybersecurity and technology risk assessments, and technology solutions to the financial services industry. Founded in 2002 by former SEC examiners and state regulators, ACA’s products are developed and provided by a team comprised of former SEC, FINRA, FSA, NYSE, NFA, and state regulators, as well as former senior managers and technologists from prominent financial institutions and consulting firms. ACA serves a diversified base of leading investment advisers, private fund managers, commodity trading advisors, investment companies, and broker-dealers.
For More Information
If you have any questions about compliance for Digital Advisers or ACA's consulting services, please contact Giselle Casella, Senior Principal Consultant, Luis Garcia, Principal Consultant, or your ACA consultant.