Singaporean regulator clarifies licensing requirements for digital advisors

Maria Nikolova

Digital advisers that operate as financial advisers will be allowed to pass their clients’ trade orders to brokerage firms for execution, without the need for an additional capital markets services licence.

The Monetary Authority of Singapore (MAS) has been making strides in facilitating the use of novel technologies in the financial services area. Earlier this year, the regulator said it was working on guidelines for artificial intelligence (AI) solutions use by financial institutions. Today, MAS published its Guidelines on Provision of Digital Advisory Services, which aim to facilitate the provision of these services in Singapore.

The guidelines are applicable to all financial institutions offering digital advisory services in Singapore.

Let’s note that the Authority defines digital advisers, also known as robo-advisers, as entities that provide advice on investment products through direct access to automated, algorithm-based tools to clients, with limited or no human adviser interaction. In contrast, conventional FAs may rely on similar algorithm-based tools at the back-end to help their representatives advise and service their clients.

Digital advisers operating in Singapore will have to be licensed for fund management, dealing in capital markets products and/or providing financial advisory services under the relevant Acts. The type of licensing depends on the operating model of the digital adviser. A digital adviser may also qualify for exemption from licensing, if it meets the relevant exemption provisions in the Acts.

Some digital advisers typically assist clients to pass their buy or sell orders (e.g. CIS, bonds and stocks) to brokerage firms for execution. The passing of such orders to brokerage firms for execution constitutes dealing in capital markets products under the Singaporean laws. However, MAS recognizes that the risks posed by facilitating the execution of clients’ buy or sell orders are low.

To allow FAs to provide better services to clients, digital advisers which are FAs are exempted from the need to hold a CMS (capital markets services) 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 activities.

The regulator explains that dealing is considered incidental only if the digital adviser has provided advice to a client and subsequently assists the client to pass on the order to a brokerage firm for execution. The Dealing Exemption is independent of whether the specific recommendation is accepted by the client.

It is common for digital advisers to offer rebalancing of clients’ portfolios to address portfolio drift. This entails bringing the clients’ portfolios back to the most recent advice provided to the clients on the recommended asset allocation. This rebalancing of portfolios is automated and performed periodically.

Such portfolio rebalancing activities are treated as fund management under the SFA and persons who conduct such activities are required to hold a CMS licence in fund management unless otherwise exempted. However, MAS recognizes that there are merits to exempt digital advisers from holding a CMS licence in fund management to carry out rebalancing activities for portfolios that comprise solely of listed and unlisted CIS (“Fund Management Exemption”).

Portfolio rebalancing is considered incidental to the advice provided where it is solely for the purpose of aligning the portfolio back to its last recommended allocation as agreed or chosen by the client, and there is no change to the constituents of the portfolio. The scope of the Fund Management Exemption is limited to CIS as rebalancing of portfolios comprising individual securities requires FAs to advise clients on which securities to invest in, and the client’s consent should be obtained for this purpose.

Digital advisers relying on the Fund Management Exemption will be required to:

  • (a) ensure that the rebalancing activity is carried out only for portfolios comprising solely listed and unlisted CIS;
  • (b) obtain a one-time prior written authorisation from the client to periodically rebalance the constituent units of the portfolio;
  • (c) provide a written disclosure to the client on the following, prior to obtaining the client’s written authorisation:

(i) the scope of rebalancing activities, including frequency and methodology of rebalancing;

(ii) fees payable and any other material terms and conditions associated with periodic rebalancing;

(iii) advance notice period that will be provided prior to carrying out any rebalancing activities; and

  • (d) notify the client prior to each and every rebalancing transaction.

Read this next

Retail FX

Banxso announces 8.7% interest rate on deposits in South Africa

“With Banxso, they can enjoy the benefits of both worlds – earning competitive interest and having the freedom to trade, all within the same platform.”

Industry News

FINRA to publish transaction details in U.S. Treasury securities

“Consistent with our longstanding practice, FINRA is introducing greater transparency in a calibrated and careful manner, benefiting liquidity and resilience in this critical market while also mitigating potential information leakage concerns.”

Institutional FX

OpenYield launches “cheap and easy” fixed income trading for brokers

“We’re on a mission to make bonds cheap and easy to trade, and are excited about the opportunity to build generational capital markets infrastructure.”

Digital Assets

Sumsub and Mercuryo publish a guide for VASPs: “Mastering Travel Rule Compliance”

“At Sumsub, we’ve concentrated our efforts on filling the gap in understanding the complexity of Travel Rule regulation and helping organizations find the best solution to stay safe and compliant while minimizing costs and avoiding potential risks of non-compliance. This guide we created with Mercuryo, our trusted partner, is the ultimate navigation tool all VASPs can consult.”

Digital Assets

Bitget Wallet Leads with Record Swap Volume & New Crypto Innovations

This week, Bitget Wallet achieved a milestone by surpassing Metamask with a record 388,757 Swap order transactions, securing the global lead. The significant 7-day trading volume, almost 68,000 more than its rival, underscores its liquidity and user trust. This robust activity signals Bitget Wallet’s prominent role and reliability in the dynamic crypto market.

Digital Assets

Embarking on a Digital Currency Journey

Imagine you’ve stumbled upon a treasure map, leading you to untold riches hidden in the vastness of the internet. Instead of gold coins and jewel-encrusted goblets, this treasure comes in the form of digital currencies, the modern-day loot coveted by many.

Reviews

Traders Union Experts Share The Trading Analyst Review For 2024

Navigating options trading in rapidly shifting markets poses a considerable challenge. This is where options trading alert services become invaluable. They aid traders in keeping abreast of evolving opportunities and market trends. In this assessment, Traders Union experts scrutinize The Trading Analyst alert service to ascertain its efficacy. 

Digital Assets

BlockDAG’s Presale Achieves $9.9M: Aiming For A 5000-Fold ROI As Cardano’s Price Rises And Fantom Launches Sonic

Explore Cardano’s surge, Sonic’s efficiency, and why BlockDAG’s growth makes it the top crypto choice. A deep dive into the future of blockchain investments.

Digital Assets

US, UK probe $20 billion Tether transfers tied to Russian exchange.

U.S. and UK authorities are investigating the movement of $20 billion in the USD-pegged stablecoin tether (USDT) through Moscow-based exchange Garantex.

<