Under the guidelines, digital advisers that seek to offer fund management services to retail investors will be eligible for licensing even if they do not meet the corporate track record required by the Securities and Futures Act (SFA). Under the SFA, fund management firms must have a five-year corporate track record or a minimum AUM of S$1bn ($720m) to be licensed.
The exemptions are applicable provided that firms adhere to certain requirements. For example, digital advisers offering fund management services are required to have a board and senior management members with relevant experience in fund management and technology.
The portfolio offerings should comprise only “non-complex” collective investment schemes, according to the guidelines. It also noted that those that do not meet the five-year corporate track record or minimum AUM criteria are not allowed to manufacture the underlying collective investment schemes offered to clients.
In addition, the client-facing tools operated by such digital advisers should be fully automated to avoid undue influence on the advisory and portfolio construction process or the client’s investment decision, the guidelines said.
“We are refining our regulatory framework to support innovation in financial advisory services while maintaining adequate safeguards to protect investors’ interests,” Lee Boon Ngiap, assistant managing director for capital markets at MAS, said in a statement.
“The guidelines will facilitate new online business models to provide investors with more options to access investment advice.”
Other regulators in the region have been relaxing or clarifying robo-advisory rules:
In Hong Kong, the Securities and Futures Commission issued guidelines in April that will allow asset management firms to set up their own online distribution channels, which is expected to take effect in April next year. Currently, fund managers can only distribute products to Hong Kong investors through third-party distributors.
In Taiwan, the Securities and Futures Bureau said earlier this year that it would scrap a rule that requires a master agent contract on investment information collection as a prerequisite for licensing robo-advisory services. Taiwan’s Financial Supervisory Commission only permitted the use of robo-advisors for the first time last year.
In Malaysia, the Securities Commission provided application details for a new category of portfolio management licence called the digital investment management (DIM) licence. The licence will be issued to qualified fund houses that plan to be involved in automated discretionary portfolio management services.