The Monetary Authority Singapore (MAS) has released a series of guidelines that aim to facilitate operations of entities offering robo-advisory services in the country.
The regulator introduced certain refinements in the licensing and business conduct requirements under the Securities and Futures Act (SFA) and Financial Advisers Act (FAA).
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Under the new regime, digital advisers providing fund management services to retail investors will be eligible for licensing even without meeting the SFA corporate track record requirements.
However, certain caveats were introduced to enable this initiative. The safeguards put in place include the requirement that such entities can offer portfolios that comprise only non-complex collective investment schemes.
Other safeguards include the requirement to have a management team with relevant fund management experience, and carrying out an independent audit after the first year of operations.
MAS Capital Markets assistant managing director Lee Boon Ngiap said: “We are refining our regulatory framework to support innovation in financial advisory services while maintaining adequate safeguards to protect investors’ interests.
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By GlobalData“The guidelines will facilitate new online business models to provide investors with more options to access investment advice.”
In addition, digital advisers are no longer required to comply with the FAA rule that mandates collection of data related to the financial circumstances of a client, such as income and financial commitments, if they incorporate enough risk-mitigation measures.
With the new guidelines, digital advisers operating as financial advisers will be permitted to pass their clients’ trade orders to brokerage firms for execution.
Besides, they can now re-balance their clients’ portfolios in collective investment schemes, without the requirement of an additional capital markets services licence under the SFA.
Despite facilitating the provision of digital advisory services, MAS underscored the inherent risks associated with the business model, including faulty algorithms and cyber threats.
To address these risks, the regulator has called on entities to establish stringent frameworks for the supervision of algorithms, as well as manage technology and cyber risks.
