In June, the Monetary Authority of Singapore released a consultation paper aimed at helping investment firms offering digital advisory services to retail investors and encouraging them to grow. Digital advisors are also known as robo-advisors, which provide automated, algorithm-driven financial planning services with little to no human supervision.
One of the proposals made was for firms who offer such services to be exempt from meeting existing requirements to qualify for a capital-markets services (CMS) license in Singapore, subject to certain conditions. Currently, local fund managers with retail clients need to have a five-year corporate track record and S$1 billion in assets-under-management to earn the CMS license.
Digital, or robo-advisors currently operating as licensed financial advisors will also be allowed to execute trades and rebalance client portfolios without the need for an additional licence under the Singapore Securities and Futures Act.
Digital advisors can also seek exemption from the requirement under the Financial Advisors Act to collect the full suite of information on clients’ financial circumstances, such as details of their income level, subject to a number of safeguards.
Why is MAS proposing these concessions?
MAS said its proposals are aimed at supporting innovation in the financial services sector. By doing so, the central bank has signalled that it understands the potential of financial technology (FinTech) and wants to encourage businesses in this new industry, many of which are start-ups with no track record, to grow.
MAS also intends to ensure that the rising number of robo-advisors in Singapore is safe for retail investors. In fact, it is in the progress of drawing up a robust framework to regulate the design, testing and monitoring of algorithms used in this segment of FinTech.
Notably, Singapore is not the first or only one in the region in on the game. The FinTech industry is growing in Malaysia, which was the first country in Southeast Asia to propose a regulatory framework for equity crowd-funding.
Last October, Bank Negara Malaysia also issued its Financial Technology Sandbox Framework, under which firms were given the freedom to experiment with FinTech solutions accompanied by the appropriate safeguards.
What does it mean for investors?
That central banks are taking wealth management FinTech seriously is good news for retail investors, especially in the wake of several online financial scams in Malaysia involving fraudulent companies like JJPTR. Now that many more FinTech firms like robo-advisors are coming under central bank scrutiny, investors gain a level of protection.
The other advantage is choice. Robo-advisors are much cheaper than human financial planners and wealth managers. Now, investors who were not able to afford the options offered by big financial institutions have one that is affordable.
As a result, interest in quantitative investing or computer-driven funds, which harnesses complex algorithms and artificial intelligence to beat the markets, is rising.
According to Hedge Fund Research, quantitative funds have doubled their assets under management to US$918 billion over the past 8 years at the expense of traditional hedge funds.
Meanwhile, about a third of the money invested in hedge funds have been channeled into those using quant strategies. The main difference is quantitative funds are able to execute trading strategies in a consistent and bias-free manner.
How is CP Global positioned?
Having deployed AI-assisted strategies since 2013, CP Global has been one of the first movers in quantitative investing in Malaysia and Singapore. However, CEO Raymond Tan reckons the best approach to modern-day trading is a combination of quantitative AI execution and fundamental analysis done by experienced fund managers.
The way he sees it, while machine-based trading removes error and emotional bias, it is the judgment call of an experienced fund manager that gives CP Global its edge. This human plus AI approach seems to be paying off, with the CP Multi-Strategy Fund recording a cumulative return of 50.73%, with no losing year since deploying AI-assisted strategies in September 2013, according to latest data from ratings agency MorningStar.
Disclaimer: This article does not constitute an offer or solicitation to anyone in any jurisdiction in which such offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. Investments are subject to investment risks including the possible loss of the principle amount invested. Past performance of the CP Global funds is not necessarily indicative of its future performance. The performance of the CP Global funds are not guaranteed and the value of the units in the CP Global funds and the income accruing to the units, if any, may fall or rise. All fund prices, if any, shown here are indicative and are subject to change without prior notice. CP Global accepts no liability for any loss whatsoever arising directly or indirectly from any use of or reliance on the information provided on this page.