FEATURES OF REGULATING ROBO-ADVISORS IN THE USA

Abstract

The article is dedicated to the study of the complex and rapidly evolving field of regulating the activities of robo-advisors in the United States. The paper analyzes the distinctions between two outwardly similar but fundamentally different types of robots: robo-advisors and humanoid robots. Robo-advisors, which are software platforms designed to automate the provision of financial and investment services, are gaining popularity rapidly, necessitating a thorough examination of the existing regulatory framework and the identification of potential gaps that could threaten investors’ interests. The research focuses on the activities of the U.S. Securities and Exchange Commission (SEC) and other federal and regional authorities overseeing these new financial intermediaries. Particular attention is paid to how existing norms and regulations, originally developed for traditional financial institutions, are applied to robo-advisors that utilize complex algorithms. A central element of the analysis is the concept of fiduciary duty. The author examines the extent to which robo-advisors, operating based on pre-programmed algorithms, can meet the high standards of fiduciary responsibility required of traditional investment advisors and broker-dealers. The study also addresses the challenge of ensuring that algorithms making investment decisions act in the best interests of clients, minimizing the impact of potential internal conflicts of interest or risks associated with software malfunctions. The article provides a detailed analysis of the risks associated with the use of algorithmic solutions in the investment process. These include risks related to insufficient algorithm transparency, potential software errors, the lack of effective human oversight, and the risk of exploitation of software vulnerabilities by malicious actors. Special emphasis is placed on issues of protecting clients’ personal data and ensuring the confidentiality of information. In conclusion, the author underscores the need to modernize the legislation governing the activities of robo-advisors. Updating the regulatory framework is essential to adequately protect investors’ rights, ensure greater algorithm transparency, and adapt legal regulation to future technological advancements in the financial sector.