Le­gal Brief­ing

The sud­den boom in robo-ad­vi­sory has prompted the MAS to con­sider reg­u­lat­ing robo-ad­vi­sory ser­vices.

Singapore Business Review - - CONTENTS -

In March, OCBC Bank, one of Sin­ga­pore’s three big­gest lenders, part­nered with lo­cal fi­nan­cial tech­nol­ogy firm Wein­vest to launch robo-ad­vi­sory ser­vices for in­vestors. The bank said robo-ad­vi­sory is no longer an in­dus­try buzz­word, and its en­try—along with the re­cent in­flux of other robo-ad­vis­ers like Stash­away, Bambu, and Smartly. sg—prompted the Mone­tary Au­thor­ity of Sin­ga­pore (MAS) in June to be­gin con­sul­ta­tions on how to reg­u­late robo-ad­vi­sory ser­vices. Le­gal ex­perts ex­plained the con­sul­ta­tion pa­per looks not only to cre­ate an ap­peal­ing reg­u­la­tory frame­work for robo-ad­vis­ers, but also to pro­tect Sin­ga­porean in­vestors.

What are the key points in the con­sul­ta­tion?

MAS sets out the li­cens­ing and reg­u­la­tory frame­work ap­pli­ca­ble to dig­i­tal ad­vis­ers, pro­poses fur­ther leg­isla­tive amend­ments to fa­cil­i­tate the pro­vi­sion of dig­i­tal ad­vi­sory ser­vices in Sin­ga­pore, and sets out its ex­pec­ta­tions on how the unique char­ac­ter­is­tics and risks of dig­i­tal ad­vi­sory ser­vices should be ad­dressed, said Stephanie Mag­nus, prin­ci­pal, cor­po­rate & se­cu­ri­ties prac­tice group and head, fi­nan­cial ser­vices & reg­u­la­tory prac­tice at Baker Mcken­zie in Sin­ga­pore. The agency is propos­ing two key pro­cesses to fa­cil­i­tate the pro­vi­sion of dig­i­tal ad­vi­sory ser­vices, said Mag­nus. First is to re­lax the cor­po­rate track record re­quire­ment for re­tail fund man­agers, pos­si­bly waiv­ing re­quire­ments to demon­strate a min­i­mum fiveyear cor­po­rate track record in re­tail fund man­age­ment for dig­i­tal ad­vis­ers whose agents have rel­e­vant col­lec­tive ex­pe­ri­ence in fund man­age­ment and tech­nol­ogy. MAS also pro­poses to waive the re­quire­ments for cer­tain port­fo­lios that are heav­ily com­prised of ex­change-traded funds (ETFS) as well as dig­i­tal ad­vis­ers that go through an in­de­pen­dent post-au­tho­ri­sa­tion au­dit on key risk ar­eas af­ter its first op­er­at­ing year.

Sec­ond is to grant case-by-case ex­emp­tions from the re­quire­ment to col­lect full in­for­ma­tion on the fi­nan­cial cir­cum­stances of a client. “The MAS is pre­pared to grant ex­emp­tions from such re­quire­ments to fully-au­to­mated client-fac­ing tools—or dig­i­tal ad­vis­ers with no hu­man ad­viser in­ter­ven­tion in the ad­vi­sory process—ad­vis­ing on tra­di­tional ETFS if ap­pro­pri­ate safe­guards are put in place to fil­ter out un­suit­able clients and re­duce risk of mis­buy­ing,” said Mag­nus.

In ex­am­in­ing the cur­rent reg­u­la­tory regime, the MAS has noted that the leg­is­la­tion needs to be re­viewed to en­sure that the safe­guards re­main rel­e­vant, said Sid­dhartha Si­vara­makr­ish­nan, part­ner at Her­bert Smith and Free­hills. 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.

What le­gal safe­guards is MAS look­ing to put in place?

Specif­i­cally, robo-ad­vis­ers are ex­pected to put in place a ro­bust frame­work gov­ern­ing the de­sign, mon­i­tor­ing, and test­ing of al­go­rithms; hir­ing em­ploy­ees with com­pe­ten­cies and ex­per­tise to de­velop and re­view the al­go­rithm; and en­sure these al­go­rithms con­tinue to per­form as in­tended through the use of reg­u­lar com­pli­ance checks and other poli­cies and con­trols.

MAS is also seek­ing feed­back on the ex­tent to which the robo-ad­viser should dis­close its al­go­rithm to clients, in­clud­ing cir­cum­stances un­der which its al­go­rithm may be over­rid­den or its ser­vice sus­pended, and any ad­just­ments to the al­go­rithm, to pro­tect clients in sit­u­a­tions of ac­tual or po­ten­tial con­flict of in­ter­est. With re­gards to ac­count­abil­ity, MAS ex­pects that the board and se­nior man­age­ment of robo-ad­vis­ers will be re­spon­si­ble in ob­serv­ing and main­tain­ing these safe­guards, and en­sur­ing that their com­pa­nies nur­ture a sound risk-man­age­ment cul­ture and en­vi­ron­ment.

How should the pro­pos­als be viewed?

The MAS pro­pos­als look to pro­mote bet­ter ac­cess to dig­i­tal ad­vi­sory ser­vices and must be seen as a pos­i­tive devel­op­ment as it keeps up with global trends, said Kim Kit Ow, part­ner, bank­ing & fi­nance group at Bird and Bird in Sin­ga­pore. “To the ex­tent that the req­ui­site safe­guards are built into our reg­u­la­tory in­fra­struc­ture, there is no rea­son why such an ini­tia­tive should not be seen as a pro­gres­sive step in the right di­rec­tion,” she said. “We ex­pect to see more de­vel­op­ments in this space and we look for­ward to see how Sin­ga­pore’s ap­proach to­wards dig­i­tal ad­vi­sory ser­vices will evolve.”

The re­quire­ments to demon­strate a min­i­mum five-year cor­po­rate track record in re­tail fund man­age­ment for dig­i­tal ad­vis­ers may be waived.

Smartly.sg Smartly.sg is is one one the the robo-ad­vi­sory robo-ad­vi­sory plat­forms plat­forms that that launched launched in in 2017

Sid­dhartha Si­vara­makr­ish­nan

Stephanie Mag­nus

Kim Kit Ow

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