Edition 46 > July 2018

Allens Unravelled

Welcome

Dear clients and colleagues

Some time ago I worked on a matter for a client who had a rather nifty algorithm that was going to create a guaranteed lifetime pension specially devised for every one of my client's clients. Each product had a target market of one the client it was designed for. It sounded like a brilliant idea, and it probably was. But, there were lots of impediments, and this particular algorithm didn't really get off the ground. That was largely in part because it was hard to convince anyone to hand over their retirement savings in return for the promise of an income payable for 30-or-so years. It is one reason why comprehensive income products in retirement are pretty thin on the ground: everyone thinks they are a good idea, but no one seems prepared to buy one.

Earlier this month, Charles Randell, the new Chair of the UK's Financial Conduct Authority, gave a speech in which he posed the question: 'How can we ensure that Big Data does not make us prisoners of technology?' It seems that my client's algorithm not only offered a perfectly designed retirement product (if only someone was prepared to buy one) but in fact pointed to a much bleaker future in which the algorithm decides how we behave – the 'algocracy'.

Algocracy was a new term for me. However, it turns out there is quite a body of literature about it. (I wonder if Mr Randell had been reading Algocracy and the Post Humanist Project or perhaps Algocracy and surveillance capitalism: we live in a world governed by algorithms.) Apparently, we have moved on from surveillance and bureaucracy, and, if we read enough of the literature, democracy is on its last legs too. While that all sounds most alarming, it is also slightly exciting – not least because I don't need to turn up to Deutsche Bank Place every day for work – my laptop will keep me on the straight and narrow.

In his speech, Mr Randall spoke about the potential for Big Data, artificial intelligence and behavioural science to bring 'huge benefits to society' (that's what he said). And it is not hard to imagine that an algorithm could build the perfectly tailored financial product that is issued when one starts work and adjusts and shifts as one ages – this would overcome the need to convince a client to hand over a large sum of money at retirement. The examples Mr Randall gave were smarter ways of detecting financial crime and market abuse, cheaper and faster transactions and greater access to affordable financial advice and guidance. But his speech, while optimistic, called for caution, with him going on to say that to ensure Big Data and artificial intelligence 'remain a force for good' (maybe he hadn't been reading about the Post Humanist Project or surveillance capitalism after all), they should be used in conjunction with fair standards and public trust. Of course, this seems to be a pretty big obstacle (and I am not going to raise the Royal Commission).

You may not be aware that the Financial Ombudsman Service in the UK publishes a summary of the cases it has considered. One of those cases provides a very nice example of the problems with both (fair standards and public trust). The complainant customer had received a credit card statement from his bank it was his number on the statement and the transactions were correct, but the account name was not. The case summary suggests (somewhat coyly) that the name on the account may have been a little crude. Despite this, it took the customer some time to convince the bank that this was not his name. Happily, he eventually did persuade the bank the account name was incorrect, and the bank offered a small sum in recompense for the inconvenience it had caused the customer. It issued him with a cheque and – yes – you can guess what happened – the cheque was issued in the wrong name. It appears the customer was now pretty annoyed, and he decided to make some further inquiries of the bank, only to discover that the bank had recorded his occupation as 'professional shoplifter'. It turns out that this was also incorrect, and it is suggested, in the case summary, that the errors were not mistakes but rather that the customer was the subject of a prank by bank staff. The prank went unnoticed by the bank because the information technology platforms that administer customer accounts and issue cheques were, at least at this bank, not intelligent enough to identify an unlikely name and improbable profession. Perhaps the customer should have asked the bank to complete the 'Are you a robot' test ASIC likes its website users to take.

The point of telling you about this incident is not so much to suggest that you check the name on your bank statement, or to remind you that you really should have paid more attention in algebra, but rather to suggest that regulation doesn't do much to protect us against faulty systems, dishonesty nor even a practical joke. Mr Randell, a former lawyer and Governor of the Bank of England, appears to accept this in his speech about financial services firms using Big Data, artificial intelligence and behavioural science to 'nudge' or direct their customers to buy financial products and services. Rather than speaking about the role of regulation or the regulator, he speaks about purpose, ethics and trust. He says that the purpose of a financial services firm should be to create long-term value for customers, and that their staff should be able to apply judgment and intervene based on what is ethical. It is, like my client's algorithm, a very fine idea in theory, but it is very unlikely that anyone will buy it.

Until Round 5,

Michelle

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Update on the Royal Commission

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Have you been wondering what the Royal Commission will make of the numerous witness statements and vast amounts of other information collected from superannuation trustees in recent times? You will find out soon enough. But first, there are some curiosities from the Round Four hearings to consider – including a hint as to what the superannuation hearings will include. Read more...

   

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The Government has slowly been changing the superannuation retirement income system, with the aim of increasing the range of retirement products available to Australians. A number of changes have already been implemented, and more are to come with the proposed 'Comprehensive Income Products for Retirement' regime. We thought it was a good time to take stock and look ahead. Read more...

   

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Australian Financial Complaints Authority: a 'one-stop-shop' for financial dispute resolution

Written by Partner Andrew Maher, Associate Ingrid Weinberg and Law Graduate Calypso Strauss

The new Australian Financial Complaints Authority is to replace each of the Superannuation Complaints Tribunal, the Financial Ombudsman Service (FOS) and the Credit and Investments Ombudsman in November 2018. Read more...

   

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Meet the team
Michelle Levy

Michelle Levy
Super and Wealth
Sydney

Geoff Sanders

Geoff Sanders
Super and Wealth
Melbourne

Michael Mathieson

Michael Mathieson
Super and Wealth
Sydney

Marc Kemp

Marc Kemp
Funds
Sydney

Penny Nikoloudis

Penny Nikoloudis
Funds
Melbourne

Karla Fraser

Karla Fraser
Banking
Brisbane

James Darcy

James Darcy
Banking
Melbourne

Belinda Thompson

Belinda Thompson
Regulatory investigations
Melbourne

Gavin Smith

Gavin Smith
Technology
Sydney

Malcolm Stephens

Malcolm Stephens
Funds
Sydney

 

Meet the team
Michelle Levy

Michelle Levy
Super and Wealth
Sydney

Geoff Sanders

Geoff Sanders
Super and Wealth
Melbourne

Michael Mathieson

Michael Mathieson
Super and Wealth
Sydney

Marc Kemp

Marc Kemp
Funds
Sydney

Penny Nikoloudis

Penny Nikoloudis
Funds
Sydney

Karla Fraser

Karla Fraser
Banking
Brisbane

James Darcy

James Darcy
Banking
Melbourne

Belinda Thompson

Belinda Thompson
Regulatory investigations
Melbourne

Malcolm Stephens

Malcolm Stephens
Funds
Sydney