In line with its recognition of the rapid expansion of and new products within the FinTech sphere, the Monetary Authority of Singapore (MAS) issued a consultation paper on 7 June 2017 on the provision of digital advisory services (i.e. advice on investment products using automated, algorithm-based tools, also known as “robo-advisory services”). The consultation closed on 7 July 2017.
The MAS in examining the current regulatory regime has noted that while the existing licensing and business conduct rules under the Securities and Futures Act (SFA) and the Financial Advisers Act (FAA) are able to accommodate the provision of digital advisory services, the legislation needs to be reviewed to ensure that the safeguards remain relevant. In particular, the MAS highlighted that providers of digital advisory services would need to put in place adequate safeguards in order to manage the new technology risks associated with the algorithms and the online tools that such providers rely upon. The MAS also considered that the exemptions regime under both the SFA and the FAA could be reviewed in order to facilitate the development of the provision of digital advisory services.
To that end, the MAS sets out in the consultation its expectations on the governance and management oversight required from digital advisers, including:
The observance and maintenance of these safeguards would rest with the board and senior management of the digital adviser who will be responsible for ensuring that there is a sound risk-management culture and environment.
In order to facilitate the development of digital advisory services, the MAS also proposes in the consultation certain exemptions and dispensations, including:
The MAS notes that digital advisers typically provide advice on traditional exchange traded funds (ETFs), which are low cost and diversified investment products. Given that clients have full discretion on the investment amount and are not subjected to any form of influence or active solicitation on their investment amount during the investment process, it may be less relevant to consider the individual financial circumstances of a client. However, in order to ensure that clients make informed choices, the MAS also expects digital advisers to have controls in place to identify inconsistent responses provided by the client, such as incorporating prompts (e.g. pop-up boxes) in the questionnaire to alert the client when his responses are inconsistent, or a backend data analysis process to automatically flag inconsistent information provided by the client for follow up by the digital adviser.