The MAS has set out how robo-advisors should be overseen, removing some of the rules that apply to traditional wealth managers.
Singapore’s financial regulator proposes to free robo-advisors from some of the red tape applied to more traditional businesses, but also warns that cyber-security threats pose distinct risks to new channels.
The Monetary Authority of Singapore yesterday published guidelines on how robo-advisors, aka digital advisory services, that are based out of the Asian city-state should be provided. MAS said it has taken up ideas from consulting the public and industry.
Among its proposals is that advisors can be licenced even if they do not meet certain corporate track record tests so long as other safeguards are in place, such as having board and senior management members with relevant experience, uncomplicated portfolios and independent audits at the end of the first year in business.
The rise of such digital channels in recent years has come at a time when traditional advice delivered by humans has been seen as too expensive or cumbersome, a situation worsened by rising compliance costs. As reported as recently as yesterday, one example of a digital platform is the CONNECT by Crossbridge platform, based in Singapore, and developed by Crossbridge Capital, the wealth management firm.
Advisors will be freed from having to collect full details of clients’ financial positions so long as firms mitigate the risk of offering unsuitable investment advice. Advisors can pass clients’ trade orders to brokerages without having an additional capital markets licence, the MAS continued.
The watchdog warned, however, that digital advisors carry specific risks, such as faulty programmes and the threat of being hacked.
“To mitigate such risks, the guidelines set out MAS’ expectations for digital advisors to establish robust frameworks to govern and supervise their algorithms, as well as to manage technology and cyber risks,” it said.