New guidelines on 'robo-adviser' requirements

Providers of digital financial advisory services must already be licensed under the Securities and Futures Act (SFA) and/or the Financial Advisers Act (FAA).
Providers of digital financial advisory services must already be licensed under the Securities and Futures Act (SFA) and/or the Financial Advisers Act (FAA).PHOTO: ST FILE

New guidelines will refine the rules regarding "robo-advisers", which give investment tips using automated tools with little to no human interaction.

The Monetary Authority of Singapore (MAS) guidelines will improve clarity about the rules and set out refinements on statutory requirements. They will also cover expectations on the governance and supervision of algorithms.

Providers of digital financial advisory services must already be licensed under the Securities and Futures Act (SFA) and/or the Financial Advisers Act (FAA).

But robo-advisers offering fund management to retail investors could now be eligible for licensing even without fulfilling the SFA corporate track record requirements if they meet other specified safeguards.

And those that operate as financial advisers can now pass a client's trade orders to brokerages and re-balance a portfolio in collective investment schemes without needing another capital market services licence under the SFA.

Meanwhile, digital advisers can be exempted from the FAA requirement to collect a host of data on clients' financial circumstances, such as income and financial commitments, if they have risk-mitigating measures.

These can include questionnaires to identify and turn down would-be investors who are "clearly not suitable" for the products on offer.

The MAS added that digital advisers should set up "robust frameworks to govern and supervise their algorithms". It cited faulty algorithms and cyber threats as examples of the "unique risks" of the robo-advisory business model.

Mr Lee Boon Ngiap, assistant managing director of capital markets at the MAS, said in a statement that the central bank is "refining our regulatory framework to support innovation in financial advisory services while maintaining adequate safeguards to protect investors' interests".

"The guidelines will facilitate new online business models to provide investors with more options to access investment advice," he added.

A version of this article appeared in the print edition of The Straits Times on October 09, 2018, with the headline 'New guidelines on 'robo-adviser' requirements'. Print Edition | Subscribe