30 October 2018
On 8 October 2018, the Monetary Authority of Singapore (“MAS”) issued the “Guidelines on Provision of Digital Advisory Services” (“Guidelines”). The Guidelines, which are aimed at facilitating the provision of digital advisory services in Singapore, provide clarity on the regulatory requirements and expectations pertaining to these services.
The Guidelines apply to all financial institutions offering or seeking to offer digital advisory services in Singapore (“digital advisers”). Some provisions in the Guidelines also apply to conventional financial advisers (“FAs”), i.e. FA firms which use human advisers to provide financial advice on investment products to clients.
The Guidelines incorporate feedback from MAS’ consultation from 7 June 2017 to 7 July 2017 as well as MAS’ engagements with the industry. Released at the same time as the Guidelines was MAS’ “Response to Feedback Received - Provision of Digital Advisory Services”, which addresses some of the comments received from the consultation.
Licensing requirements and exemptions
Providers of digital advisory services are required to be licensed under the Securities and Futures Act and/or the Financial Advisers Act, there being no separate authorisation regime for digital advisers. The required type of licence is dependent on their operating model.
The Guidelines provide that digital advisers that operate as FAs are exempted from holding a capital markets services (“CMS”) licence for dealing in capital markets products if they merely assist to pass on clients’ buy or sell orders to brokerage firms for execution, provided that such dealing is incidental to their financial advisory services. Those that carry out rebalancing of their clients’ portfolios in listed and unlisted collective investment schemes (“CIS”) are exempted from holding a CMS licence in fund management. These exemptions are subject to conditions further set out in the Guidelines.
Digital advisers which seek to offer their services to retail clients, but are unable to meet the requirement for a five-year corporate track record or minimum assets under management (AUM) of S$1 billion set out in the Guidelines on Licensing, Registration and Conduct of Business for Fund Management Companies (SFA04-G05), can apply to be licensed for fund management, if:
- key individuals of the digital adviser have relevant experience in fund management and technology;
- the digital adviser only offers to retail clients, portfolios that comprise all CIS that are in substance Excluded Investment Products (EIPs); and
- the digital adviser undergoes a post-authorisation audit conducted by an independent third party at the end of its first year of operations.
Governance and supervision of algorithms
To mitigate the unique risks stemming from the business models of digital advisers, 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. The Guidelines also set out the specific requirements pertaining to the development, monitoring and testing of the client-facing tools.
Other regulatory requirements pertaining to digital advisers
Fully-automated digital advisers are exempted from collecting the full suite of information on the financial circumstances of a client, such as income and financial commitments, as set out in the FAA Notice on Recommendations on Investment Products (FAA-N16), provided that they implement mitigating controls.
The Guidelines also provide guidance in respect of:
- technology risk management;
- prevention of money laundering and countering the financing of terrorism;
- disclosure of pertinent information;
- the applicability of the balanced scorecard framework; and
- advertising and marketing regulations.
The following materials are available on the MAS website www.mas.gov.sg:
- Media release
- MAS Guidelines on Provision of Digital Advisory Services (CMG-G02)
- MAS Response to Feedback on Consultation Paper on Provision of Digital Advisory Services
Allen & Gledhill Regulatory & Compliance
To assist our clients with compliance matters, our consultancy arm, Allen & Gledhill Regulatory & Compliance, provides a range of services and solutions. Should you have any queries relating to compliance issues arising out of these developments, please contact: