Financial institutions currently regulated under Singapore’s Securities and Futures Act (SFA) and the Financial Advisers Act (FAA) can already provide digital advisory services, which the MAS defines as the provision of advice on investment products using automated, algorithm-based tools, with services provided online with limited or no human interaction with clients.
“More recently, MAS has also received indications of interest from new entities intending to offer digital advisory services to retail investors,” explained the regulator in a statement.
“The availability of digital advisory services will widen investor choice to low-cost investment advice. To make it easier for entities offering digital advisory services to operate in Singapore, MAS intends to refine the licensing and business conduct requirements,” it said.
The proposals set out in the consultation encompass the following:
- 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.
- Digital advisers that operate as financial advisers under the FAA will be allowed to assist their clients to execute their investment transactions (e.g. passing their trade orders to brokerage firms) 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, if they can satisfactorily mitigate the risks of providing inadequate advice based on limited client information.
The MAS noted that while it facilitates new business models, providers of digital advisory services would need to manage the new technology risks associated with these activities, such as the algorithms and online tools they rely on. It has thus set out expectations on the governance and management oversight required, including the need to put in place a robust framework governing the design, monitoring and testing of algorithms.
The consultation will end on 7 July 2017.