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MAS lays out proposals to ease entry of digital advisory businesses to Singapore

Wednesday, June 7, 2017 - 13:45

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Digital advisers or robo-advisers in Singapore operating as fund managers under the Securities and Futures Act (SFA) will be able to offer their services to retail investors even if they do not meet track record requirement, provided they fulfil certain safeguards.

DIGITAL advisers or robo-advisers in Singapore operating as fund managers under the Securities and Futures Act (SFA) will be able to offer their services to retail investors even if they do not meet track record requirement, provided they fulfil certain safeguards.

These safeguards include offering diversified portfolio of non-complex assets, having key management staff with relevant collective experience in fund management and technology, as well as having an independent audit of the digital advisory business within one year of operations.

This is a key proposal by the Monetary Authority of Singapore (MAS) as it moves to refine the licensing and business conduct rules to make it easier for entities offering digital advisory services to operate in Singapore, in what it said would "support innovation in financial services".

MAS on Wednesday said financial institutions now regulated under the SFA and Financial Advisers Act (FAA) can already provide digital advisory services. Some, it added, have started to do so.

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The regulator said it has received indications from interested new entities that intend to offer digital advisory services to retail investors.

The availability of such services would "widen investor choice to low-cost investment advice", MAS said.

Other key suggestions raised in the paper are:

- Digital advisers that operate as financial advisers under the FAA would be allowed to help clients execute investment transactions such as passing their trade orders to brokerage firms.

They would also be able to re-balance their clients' investment portfolios in collective investment schemes without the need for an additional licence under the SFA. This licensing exemption is to 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.

"While facilitating new business models, MAS will require providers of digital advisory services to manage the new technology risks associated with these activities," the regulator said.

It said unlike conventional financial advisory services, the delivery of digital advisory services relies on the use of algorithms and online tools to analyse client data and recommend investment portfolios.

"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."

The public consultation will end on July 7, 2017. A copy of the public consultation paper is available on the MAS website.

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