‘ROB0-ADVISORY THE NEW MODE’

SC introduces platform that offers automated and algorithm-driven financial planning services

MALAYSIA’S capital market will soon have a new mode of investment that is more convenient, affordable and accessible.

The Securities Commission Malaysia (SC) yesterday introduced the framework for Digital Investment Management, commonly referred to as robo-advisers.

These are digital platforms that offer automated, algorithmdriven financial planning services.

In practice, the platform collects data from clients about their financial situation and future goals, and then uses the information to offer advice and/or automatically invest the clients’ funds.

At a technical briefing, the SC said the new platform would be an attractive entry-level option for new investors with small accounts and limited investment experience.

“This is about enlarging the pie, and getting more investor participation.”

In the United States, where robo-advisory services was introduced in 2008, assets under management hit US$60 billion (RM billion) as at end 2015, and is projected to reach US$2 trillion by 2020.

The SC said the new investment channel is convenient and accessible as clients can access the platform on various devices, and at anytime of the day. Trades can be done after a few clicks with minimal paperwork.

“And because much of the process is automated, the cost structure is lower, which should result in lower fees for the clients,” the SC added.

The regulator has conducted engagement with the fund management industry since last year, and expects a mixture of new entrants and incumbents to apply for licences to offer these new services.

This includes regional players from Singapore, Hong Kong and Australia who are already offering robo-advisory services in their own markets, the SC added.

The SC’s framework sets out the licensing and conduct requirements for the offering of automated portfolio management services to investors.

“To reinforce investor protection, specific conduct requirements that commensurate with the distinctive characteristics of this new business model have been set out,” said the SC.

This includes the requirement for the board to be accountable for the governance of the digital investment management business.

Among others, the board must ensure that the requisite technology capabilities are in place; the risk management framework is sufficiently robust to manage risks including cyber security resilience; the outcomes produced by the algorithm are consistent with the digital investment manager’s strategy; and policies are in place to monitor and regularly test the algorithm used.

Licensed portfolio management companies may provide digital investment management services if they satisfy all the requirements in the updated licensing handbook and relevant guidelines.

Those who wish to offer digital investment management services may apply for the new licence effective yesterday. The updated licensing handbook and the guidelines on compliance function for fund management companies are available at www.sc.com.my.