The Monetary Authority of Singapore (MAS), Singapore’s central bank and financial regulatory authority, has released a consultation paper on proposals to facilitate the provision of robo-advisory services in the nation. The proposals aim to support innovation in financial services by identifying the unique characteristics of digital platforms.
MAS explains digital advisory services as the provision of advice on investment products using automated, algorithm-based tools. Such services are provided online with limited or no human interaction with the clients. It further adds it has received interests from certain new entities that intend to offer digital advisory services to retail investors.
Few financial institutions (FIs) that are currently regulated under the Securities and Futures Act (SFA) and the Financial Advisers Act (FAA) are already equipped to offer digital advisory services or the robo-advisory services. FIs such as UBS and OCBC Bank have even begun offering these services.
With the availability of digital advisory services, the investor choice to low-cost investment advice will be widened. And, MAS is planning to refine licensing and business conduct requirements, to make it easier for entities offering the services.
The digital advisers that operate as fund managers under the SFA will be allowed to offer their services to retail investors even if they do not meet the track record requirement.
However, they have to abide by certain safeguards that are — they must offer a diversified portfolio of non-complex assets, and they should have a key management staff with relevant collective experience in fund management and technology. In addition, they have to undertake an independent audit of the digital advisory business within one year of operations.
While those who operate as financial advisers under the FAA can help their clients to execute their investment transactions and re-balance their clients’ investment portfolios in collective investment schemes. They can do this without the need for an additional licence under the SFA. This licensing exemption will be made available to non-digital advisers as well.
MAS also mentions in the official statement that digital advisers can seek exemption from the FAA requirement to collect all kinds of data on the financial circumstances of a client, such as income level and financial commitments. But, to be eligible for the exemption they should be able to satisfactorily mitigate the risks of providing inadequate advice based on limited client information. Also, the regulatory authority requires the
Also, the regulatory authority requires the robo-advisory service providers to manage the risks associated with the technology that their platform is built on, for example, they may be susceptible to cyber threats and faulty algorithms. This is why it has set out various guidelines on the governance and management oversight which needs to be adopted by them.This includes the need to put in place a robust framework governing the design, monitoring, and testing of algorithms. The public consultation will end on July 7th, 2017.
