The Monetary Authority of Singapore (MAS) today issued the Guidelines on Provision of Digital Advisory Services, to facilitate the provision of these services in Singapore. The guidelines incorporate feedback from the public consultation as well as learning points from MAS’ engagements with the industry.
The guidelines will improve clarity on how existing rules apply in the context of digital advisory services. To make it easier for entities offering digital advisory services to operate in Singapore, the guidelines also set out refinements in the licensing and business conduct requirements under the Securities and Futures Act (SFA) and Financial Advisers Act (FAA) as follows:
a) Digital advisers that seek to offer fund management services to retail investors will be eligible for licensing even if they do not meet the SFA corporate track record requirements, provided they meet other specified safeguards. These safeguards include (i) having board and senior management members with relevant experience in fund management and technology; (ii) offering portfolios that comprise only non-complex collective investment schemes; and (iii) undertaking an independent audit of the digital advisory business at the end of the first year of operations.
b) Digital advisers will be exempted from the FAA requirement to collect the full suite of information on the financial circumstances of a client, such as income and financial commitments. This is on the condition that they put in place measures to mitigate the risks of providing unsuitable investment recommendations due to limited client information. Examples of mitigating controls include fact-finding questionnaires to identify and decline the onboarding of clients who are clearly not suitable for the digital advisers’ product offerings.1
c) Digital advisers that operate as financial advisers will be allowed to pass their clients’ trade orders to brokerage firms for execution, and re-balance their clients’ portfolios in collective investment schemes, without the need for an additional capital markets services licence2 under the SFA.
While MAS is making it easier for digital advisers to set up in Singapore, the business model carries unique risks, such as faulty algorithms and cyber threats. To mitigate such risks, the guidelines set out MAS’ expectations for digital advisers to establish robust frameworks to govern and supervise their algorithms, as well as to manage technology and cyber risks.
Mr Lee Boon Ngiap, Assistant Managing Director (Capital Markets), MAS, said, “We are 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.”
Digital advisers provide advice on investment products to clients using automated, algorithm-based tools, with limited or no human adviser interaction, allowing consumers greater access to lower cost financial advice.
The provision of digital advisory services is currently regulated under MAS’ capital markets regulatory framework. Providers of digital advisory services are required to be licensed under the SFA and/or the FAA. The type of licence required depends on the entity’s scope of activities and business model. Financial institutions currently regulated under the SFA and/or FAA can already provide digital advisory services.