How could we trust the Robo-advisors? ——China’s Path on Fiduciary Duties of The Robo-advisors
4 XINGSI DI
Department of Law - Law - University of Hong Kong
Abstract
The Robo-advisors, which are automated systems that provide investment portfolio service for a majority of investors, originally came into Chinese market more than ten years ago. The industry improved rapidly at the very beginning due to low market access standard and limited financial regulations. In recent years, Chinese legislators worked out with various law and regulations to help improve the industry, such as adhering to principle of prudent supervision, clarifying information disclosure requirements and responsibilities of the Robo-advisors, and educating individual investors. However, statistics proved that after 2015, the Robo-advisors industry in China turned out to be less prosperous, which may result from lack of reliance of individual investors. To make investors rely more on the Robo-advisors, now China is considering moving from technology trust to legal trust. Under this background, this article will explore the Chinese approach to regulate fiduciary duties of the Robo-advisors combined with the legal practice in China. Though the statutory fiduciary standard of the Robo-advisors and human investment advisors should be the same, whether the Robo-advisors can meet the standard under current legal framework remains doubtful. As the Robo-advisors could have various conflicts of interest, either between the seller-type Robo-advisors and the broker-dealers who are responsible for managing assets and executing orders, or the Robo-advisors and third-party technology companies responsible for designing, developing, and managing algorithms, basic particular principles of statutory fiduciary duties of the Robo-advisors need to be confirmed. By empirical study on several Robo-advisors corporations in China, the article will figure out the risks for the Robo-advisors to breach statutory fiduciary duties, and analyze the disadvantages of formal guidance for the corporations to avoid the risks. There remain lots of gap between practice and law to be filled out at present. As for equitable duties, neither do China has its own precedents, nor they have lots of cases to sum up appropriate rules, the Robo-advisors platforms may provide invaluable experience in dealing with the issues. In addition, under the premise of ensuring the bottom line of safety, China will also try to establish a supporting insurance mechanism and compensation fund, and promote the healthy and orderly development of the Robo-advisors. It is necessary to make the Robo-advisors more trustworthy, and China is still on its way to explore how to regulate fiduciary duties of the Robo-advisors.
Keywords
Robo-advisors, Financial regulation, Information disclosure, Investors protection
