Common Law - The FindLaw Consumer Protection Law Blog

Can You Get Stock Tips From a Robot?

Everything seems automated these days. And the amount of data out there seems infinite. This is especially true in the investment world, where computer programs can execute trades in nanoseconds and the smallest piece of information can make the difference between profits and pitfalls. So it only seems natural that, at some point, robots would replace humans as financial advisors.

So-called "robo-advisors" are the hot new thing, and, as with any new invention, the regulators are on their way. The Securities and Exchange Commission (SEC) has, for the first time, included "electronic investment advice" on its annual list of examination priorities. So what regulations are in store for robo-advisors?

Robo Regulations

Last week, the SEC's Office of Compliance Inspections and Examinations released its examination priorities for 2017, and robo-advisors made the list. Included under the umbrella of automated and digital investment advice platforms, the OCIE will:

[E]xamine registered investment advisers and broker-dealers that offer such services, including "robo-advisers" that primarily interact with clients online and firms that utilize automation as a component of their services while also offering clients access to financial professionals. Examinations will likely focus on registrants' compliance programs, marketing, formulation of investment recommendations, data protection, and disclosures relating to conflicts of interest. We will also review firms' compliance practices for overseeing algorithms that generate recommendations.

So if you're using a robo-advisor now, you might be in for some more protection when it comes to your information and your advice. And if not, you may see some of your electronic investment advice options come with some more restrictions.

Securities Security

The OCIE also asserted that it will continue its initiative "to examine for cybersecurity compliance
procedures and controls, including testing the implementation of those procedures and controls." So as more and more investing moves online, the SEC will remain on top of securities regulation.

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