The Monetary Authority of Singapore (MAS) released a consultation paper on 7 June 2017 proposing to regulate entities interested in providing digital advisory services, commonly known as robo-advisory services. In essence, provision of online advisory services on investment products using automated, algorithm-based tools (with limited or no human interaction with clients) will be covered under this new consultation paper as ‘digital advisory services’.
Whilst financial institutions with a licence for fund management or dealing in securities under the Securities and Futures Act (SFA) or a financial adviser’s licence under the Financial Advisers Act (FAA) can already provide digital advisory services, there are several new entrants in the market interested in providing robo-advisory services through a digital platform. As digital advisory services continue to gain interest and momentum in Singapore, MAS recognises that existing regulations may not be completely fit for purpose for addressing the unique characteristics of digital platforms.
Some of the key proposals made by MAS are as follows:
- Refine the licensing and business conduct requirements for digital advisory services providers to make it easier for entities to offer such services. This will in turn help provide more choices to investors in terms of low-cost investment advice
- Permit digital advisers that operate as fund managers under the SFA to offer their services to retail investors even if they do not meet the track record requirement, provided they meet certain safeguards such as; offering diversified portfolios of non-complex assets, having key management staff with relevant collective experience in fund management and technology, and undertaking an independent audit of the digital advisory business within one year of operation
- Allow digital advisers that operate as financial advisers under the FAA to assist their clients in executing their investment transactions and re-balance their clients’ investment portfolios in collective investment schemes without the need for an additional licence under the SFA
- Reduce the burden on digital advisers by allowing them to 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, provided they can satisfactorily mitigate the risks of providing inadequate advice based on this limited client information
- MAS identifies that digital advisory services will rely heavily on algorithms and technology to analyse client data and make investment recommendations which may be susceptible to technology risks like cyber threats and errors in algorithms. As such, MAS expects digital advisers to put in place a robust framework of governance, with management oversight to manage the technology risks and algorithm designing, testing and monitoring, and
- The digital advisers are also expected to have adequate compliance arrangements to monitor the quality of advice being provided.
MAS’ intention to amend existing regulations to accommodate this new wave of digital advisers is a step in the right direction, as the lighter touch regulation will harness the growth opportunities in the fintech industry in Singapore which is a key focus of MAS.