Regulating Investment Robo-Advisors in China: Problems and Prospects

Abstract

The robo-advisor excels at simplifying the process of making investments, improving its efficiency. Since its first appearance in the market, it has been welcomed by investors across the world. However, the current regulatory system in China is not only overly restrictive, but also unable to provide proper guidance to regulate securities investment advisors. The development of Chinese robo-advisor business faces various obstacles, such as high entry barriers, the inability to provide comprehensive wealth management services. These difficulties are due to prohibitions on granting securities advisors full power of attorney. The uncertain legal status of robo-advisors also creates issues with legitimacy. In addition, there is severe information asymmetry and a lack of investor protection in the operation of robo-advisors. These problems have impeded the development of the robo-advisor industry in China. In light of the approaches of the US and Australia in regulating robo-advisors, this paper suggests that China should consider an incremental approach that is tailored to domestic conditions to promote the growth of its robo-advisor industry. Recommended measures include: improving information disclosure requirements, refining the fiduciary duties of robo-advisors, and regulating the algorithms of robo-advisors. Regulatory sandbox may also be considered, as it could encourage the development of financial technology while mitigating the risks arising from the use of such technology.