SEC Weighs New Rules on Robo Advisories

By Sahabi Abdul

Nigeria’s Security and Exchange Commission (SEC) is considering amendments to its rules that will expand the use of automated digital services or robo-advisories in communications between brokerages and investors.

Robo advisories provide investment advice “using automated, algorithm-based tools which are client-facing, with little or no human adviser interaction,” according to the draft amendment seen by SEC says there’s need to “provide guidance on the regulatory requirements and expectations in relation to the provision of automated advisory services.”

In addition to existing rules on investment advisory services, SEC requires a robo adviser that wants to function as a portfolio manager to register as such and comply with relevant rules governing such operations. Where such automated, digital services are contracted out, there will be no need to register the third party as responsibility will be that of the service provider to conduct appropriate due diligence.

Whatever the advice provided, the client reserves the right to reject it and choose an alternative investment. However, the provider is required to document the client’s decision, “highlighting to the client in writing that it is the client’s responsibility to ensure the suitability of his investment decision.” Clarifications are also provided on the appropriate conduct in cases where clients want to rebalance their portfolios, among others.

Stakeholders and members of the public are expected to make their observations and comments on the proposed changes, which will apply to all capital market operators and individuals offering digital advisory services, before they’re finally put into effect.

Nigeria has experienced an explosion of interest in financial investments aided by a surge of growth in fintech companies that have simplified access through apps and other digital means. Mounting inflation and the economic woes following the coronavirus pandemic have provided more impetus for middle class Nigerians to seek avenues to preserve their wealth and keep ahead of price increases.