CMA seeks public input on financial institutions’ offering of robo-advisory services

Logo of Capital Market Authority (CMA)

The Capital Market Authority (CMA) invited interested persons and capital market players to submit their views on the draft bill to allow financial institutions to offer robo-advisory services.

The consultation period is 30 days, ending on Sept. 24.

The proposed draft aims to enable licensed financial institutions engaged in investment management or fund operation to offer robo-advisory services. This would be carried out through the use of algorithms and modern technological tools to manage client investments based on pre-defined investment strategies.

The initiative aligns with the CMA's efforts to support fintech, provide innovative and efficient solutions for investors, enhance market efficiency, and expand the range of financial services delivered through modern technologies. It will also contribute to the availability of new investment channels tailored to suit the needs of various investor segments, particularly individuals and amateurs, said the market regulator.

Under the new bill, a set of requirements to ensure the soundness and efficiency of services provided through robo-advisory. They oblige financial institutions to notify CMA in advance of the strategies adopted in constructing and managing investment portfolios, and of any updates thereto, before making them available to the public, it added.

The draft also entails the establishment of systems and control procedures to ensure the soundness and efficiency of the algorithms and technologies used, as well as conducting periodic tests to verify the reliability and effectiveness of these technologies in achieving their intended objectives.

This covers industry players boasting investment portfolios that are not saturated with a single asset or securities issued by a single issuer. If the robo-advisory service involves securities issued or listed abroad, these securities must be subject to the supervision of a regulatory authority adopting standards and regulatory requirements at least equivalent to those applied by CMA.

The proposed bill will also mandate the public disclosure of the details and operational mechanisms of the provided robo-advisory services. This includes clarifying the strategies used in constructing and managing investment portfolios, asset selection criteria, allocation rules, and portfolio rebalancing algorithm.

It also defines the additional responsibilities related to functional registration, including the requirement for institutions to name and register an information technology officer to be responsible for managing and overseeing the technological systems used in providing robo-advisory services.

Moreover, participating parties will be required to present a performance track record of investment portfolios since inception. This includes disclosing their performance gauge standards and methodologies, as well as the total returns achieved after deducting actual expenses. These details must be published on the websites of capital market institutions.

More requirements shall also be mandated under the new bill, in a bid to ensure that institutions offering robo-advisory services maintain ongoing prudential requirements, guaranteeing service continuity while protecting investor rights.

The Draft Regulatory Framework for Robo-Advisory