The Monetary Authority of Singapore (MAS) has published a consultation on the regulation of Robo-Advisors or “Digital Advisory Services.” The consultation will close on July 7, 2017.
The MAS proposal seeks to support innovation in financial services by recognising the unique characteristics of digital platforms. Currently, financial services are regulated under the Securities and Futures Act (SFA) and the Financial Advisers Act (FAA) and can already provide digital advisory services. MAS states that some have started to do so. More recently, MAS has also received indications of interest from new entities intending to offer digital advisory services to retail investors.
MAS believes that Robo-advisors can improve investor choice and lower the cost of advisory services. MAS wants to make it easier for Robo-advisors to operate in Singapore by refining licensing requirements.
- 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, provided they meet certain safeguards. These safeguards include:
- offering diversified portfolios of non-complex assets;
- having key management staff with relevant collective experience in fund management and technology;
- undertaking an independent audit of the digital advisory business within one year of operations.
- Digital advisers that operate as financial advisers under the FAA will be allowed to assist their clients to execute their investment transactions and re-balance their clients’ investment portfolios in collective investment schemes without the need for an additional licence under the SFA. This licensing exemption will also be made available to non-digital advisers.
- Digital advisers can seek exemption from the FAA requirement to collect the full suite of information on the financial circumstances of a client, such as income level and financial commitments, if they can satisfactorily mitigate the risks of providing inadequate advice based on limited client information.
MAS says that while facilitating new business models, they will require providers of digital advisory services to manage the new technology risks associated with these activities. As digital advisory tools may be susceptible to technology risks such as erroneous algorithms and cyber threats, MAS has set out expectations on the governance and management oversight to be adopted by digital advisers, including the need to put in place a robust framework governing the design, monitoring and testing of algorithms. This includes having adequate board and senior management oversight and compliance arrangements to monitor the quality of advice provided.