"The distinction between advice and guidance, once reasonably clear, has become much greyer with the advent of platforms and the potential of robo-advice."
The distinction between advice and guidance has "become much greyer" with an increase in technology and the arrival of robo-advice, according to FCA Chairman John Griffith-Jones.
In a speech at Cambridge Judge Business School, Griffith-Jones said that the problem of what transactions and which products or services are covered by regulation "is exacerbated further by the remorseless march of technology".
He explained: "Rules that were designed for the paperwork era do not work necessarily for the online one. The distinction between advice and guidance, once reasonably clear, has become much greyer with the advent of platforms and the potential of robo-advice.
"Artificial Intelligence puts the pooling of risk via insurance under pressure as individual odds become increasingly forecastable. An additional challenge comes from the differential pace of take up of new ways of doing things by the general public. Our children’s knowledge of cheques stretches little further than Christmas presents from grandparents."
Griffith-Jones believes the financial sector "may have something to learn here from other regulators" including telecoms and pharmaceuticals.
He added that the FCA is seeking to embrace technical developments through its Project Innovate and Sandbox initiatives, stating that "the more detailed regulation that we have the greater is the challenge of keeping it all current".
Discussing how the FCA tackles its objectives and perimeters, Griffith-Jones says there is "no electronically shrink wrapped manual that can tell a conduct regulator how to deal with each situation, the exercise of good judgement can be aided by technology, but not supplanted".
Griffith-Jones discussed some decisions that he believes can't be made be technology, as the regulator needs "to understand psychology as much as being financial analysts".
He continued: "Behavioural economists have shed light on the way that real people behave, and it is not necessarily in line with econometric models. Human bias, over optimism, herding, hindsight and, dare I say it, apparent irrationality are alive and well in some consumers. So, unfortunately, are the asymmetry of knowledge, market power, and regrettably the temptation to cheat in some firms.
"Do we authorise that firm, allow this product to be sold, investigate that whistleblowing report, conduct this competition market study, pass such and such a rule, or initiate enforcement proceedings? These are ‘micro’ decisions that have to be made every day."