Singapore Offers New Legal Framework for Robo-Advisory

The MAS has released new potential guidelines for digital advice services.

Earlier today the Monetary Authority of Singapore (MAS) published new regulation guidelines for robo-advisory services, and it is now awaiting the local trading community’s approval. The latter group may include banks, brokerages, and individual traders that might be interested in having the service available in their country.

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As of now, financial institutions that are regulated under the Securities and Futures Act (SFA) and the Financial Advisers Act (FAA) are authorized to offer online advisory services. Certain companies are already providing these services and the MAS guidelines are the regulatory authority’s response to growing interest from financial entities which have yet to enter this market.

Firms that are authorized to work as fund managers under the SFA will be able to offer robo-advisory services despite not meeting the track record requirement, as long as they meet safety demands. These demands include providing diverse non-complex asset portfolios, conducting independent audits of the robo-advisory firm within a year of operation, and employing staff with fund management and technology related experience.

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Financial advisors operating under the FAA, whether offering robo-advisory services or not, will be authorized to help clients execute trades by moving orders to broker companies or by re-balancing their portfolios in collective investment schemes without needing an SFA license. Digital advisors can become exempt from having to collect the full details of clients’ financial backgrounds, usually required by the FAA, if they work to lower or avoid the risks involved with improper advice based on limited information provided by the client.

Due to the risks surrounding digital advisory services, the MAS expects firms to protect client interests by maintaining a secure framework to monitor, test, and design the algorithms on which their platforms are based. The board and senior management will then observe the operation to ensure that the service is adequate.

A copy of the consultation offer will be available on the MAS website until July 7 2017, when the public consultation will end.

The robo-advisory trend is on the rise, with many financial institutions and brokerages offering the service on their platforms. Recently, Finance Magnates covered the international bank HBSC’s having launched the development of its own robo-advisor.

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