Many financial services businesses now use technology, such as algorithms and chatbots, to help attract and service their customers.
While some organisations may create their own chatbot software, most use a third party technology provider. In these cases, generally the software is licensed by the developer to the licensee organisation with or without support services. It may be hosted by the developer, or self-hosted by the organisation. Generally the chatbot is branded by the licensee organisation so that users interacting with the chatbot feel like they are interacting directly with the licensee organisation.
As chatbots ‘speak’ to customers it raises some interesting questions. In particular, is a financial service being provided, and if so, who is providing that financial service? Is it the developer, or the licensee organisation, and does it depend where the software is hosted?
Let’s take the example of a chatbot that has been licensed to a financial services business and is supported by the software provider.
Is any financial advice being provided?
A chatbot may be providing a financial service if it:
Whether a chatbot is providing financial product advice to customers will depend on the questions and responses that are approved by the business licensing the chatbot software. If responses containing advice are approved by the licensee organisation, and the chatbot is capable of tailoring such a response based on the consumer’s particular circumstances, then it will be personal advice. If there is no tailoring capability, it’s general advice.
Generally, it’s presently unlikely that chatbots will provide personal advice to a customer, as this requires more complex algorithms of the type used for robo-advice. Such a chatbot would be, in essence, a robo-adviser.
A chatbot could also be ‘dealing’ in financial services if the customer enters into a financial transaction as they interact with the chatbot, such as if an insurance application can be lodged with a chatbot or a policy issued.
If financial product advice is provided or the chatbot deals in financial services, then you need to determine who is actually providing that service.
Who is providing the financial services?
In the past, financial services were provided by people over the phone, through email or in person. Chatbots have now eliminated the need for a human operator, but it’s not the human the chatbot replaces – it is the technology the human operator uses that is replaced.
That is, it becomes possible for a corporate entity to speak directly with its customers without interfacing through an employee. Instead, the company uses the technological communications conduit of the chatbot, instead of a phone or email service combined with a human operator.
Because of this, chatbots cannot be assumed to be providing the service that was provided by the human who has been eliminated. Rather, chatbots are a piece of infrastructure that uses content, and that content needs to be authored and approved by someone. It’s that person who is now providing the financial service that the human operator once did.
The business who creates the chatbot technology isn’t necessarily the same as the one who creates and approves the content - this is usually the business who has licensed the software.
A software business that licenses a chatbot to a financial services business can’t be responsible for the services its technology provides, even if they offer support, customer service or even hosting services.
Think of it like this - Google isn’t providing a financial service when someone gives financial advice over Gmail. The person providing the service is the one who creates the content of the email. This means that businesses who create content for chatbots need to be aware of what services the chatbots are providing, because they may need to hold an AFS or credit licence and make sure that they’re compliant with the financial services or consumer credit laws.
If you’re not sure whether the services your chatbots provide are regulated, or if you need to be licensed, do seek legal advice. For more information on The Fold’s services in this area visit AFS and Credit Licensing. We’d be happy to help.
Author: Jaime Lumsden Kelly