Singapore's Red Carpet for Robots

Singapore is thinking of making life easy for robot advisers.

It's a good idea to let low-cost, algorithm-based wealth managers have their shot at upending the marketplace for financial advice. Clients, especially millennials, are reluctant to pay top-drawer fees for unappetizing returns. The robot-wallahs claim to do a more efficient job, more transparently. They deserve a chance to prove it.

Still, there are risks, and not all of them are equally obvious.

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In a recently released consultation paper, the Monetary Authority of Singapore proposed freeing digital advisers from the requirement that, in order to manage retail money, they must have a minimum five-year track record and S$1 billion ($723 million) in assets. Instead, they can obtain a license provided they have the technology and management expertise, and only recommend portfolios that are at least 80 percent in exchange-traded funds.

MAS portfolio recommendation

At least 80% traditional ETFs

This pragmatic approach deserves a thumbs up. Besides, the MAS has made it clear that it will hold advisers' boards and senior managers responsible for back-testing algorithms, and making sure they aren't tilted toward products that fetch advisers higher fees.

The one risk that could still come back to bite is the false sense of calm inbuilt in the very asset class that digital advisers are expected to stick to: exchange-traded funds.

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Singapore is right to insist that digital advisers looking to use its proposed licensing framework use traditional ETFs. These plain vanilla products don't use leverage to amplify gains, and rather than entering into derivative contracts to deliver the performance of an index, hold a basket of securities passively.

This much protection may be enough when the VIX, investors' preferred fear gauge, is at 10. But with ETFs continuing to wrest market share away from active investors, the next time the volatility index shoots past 30 -- like it did on a number of occasions between 1998 and 2002 and again during the 2008 financial crisis -- ETF liquidity might prove to be a mirage. That's when a bunch of angry investors will want to sue their robot advisers.

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Problems are most likely to arise when ETFs are liquid but their underlying securities aren't. Arbitrageurs who deal directly with ETF sponsors, and buy and sell fund units and their underlying securities to take advantage of price mismatches are shy, for instance, to buy illiquid corporate bonds. As a study published in February showed, market volatility can "severely reduce" the efficacy of the arbitrage mechanism just when mispricing is the highest.

Singapore is in luck. From December 2018, open-ended mutual funds in the U.S., including ETFs, won't be allowed to hold more than 15 percent of their net assets in securities that can't be sold within seven days. Until a similar norm becomes a globally accepted code, any faith in ETFs' safety will carry with it the underappreciated risk of an unanticipated liquidity drought.

That shouldn't stop Singapore from rolling out the red carpet for robot advisers, so long as the regulator has its eyes wide open.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Monetary Authority of Singapore and Asba sign fintech co-operation...

The Monetary Authority of Singapore (MAS) and the Association of Supervisors of Banks of the Americas (ASBA) today signed a Memorandum of Understanding (MOU) to bolster FinTech ties between Singapore and the Americas.

The MOU provides a framework for FinTech cooperation between Singapore and ASBA member countries. Under the framework, both parties can explore potential joint innovation projects on technologies such as blockchain and big data. MAS and ABSA will also facilitate discussions on issues of mutual interest, such as emerging FinTech trends and other pertinent issues on innovative financial services.

Mr Sopnendu Mohanty, Chief FinTech Officer, MAS, said: “FinTech is fundamentally about ideas and enterprise flowing between cities. It requires bringing together a range of stakeholders. This MOU embodies MAS’ and ASBA’s resolve in accelerating the growth of FinTech in the respective regions, through increased collaboration and exchanges between our respective FinTech ecosystems”.

In turn, Mr Rudy Araujo, Secretary General, ASBA, commented that “FinTechs will progressively change the region’s financial ecosystem. This change is expected to occur in an environment characterized by an ample competition, transparency, sound risk management, and client-centeredness. Thus, by uniting efforts with the MAS, we expect to support the development of a regulatory and supervisory framework that while supporting financial stability, nurtures innovation, and promotes market transparency and proper conduct.”

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Singapore Trials its Digital Dollar via an Ethereum Blockchain

Singapore’s central bank has published a post-trail analysis of its blockchain endeavor that saw digital tokens of the national currency issued on a private Ethereum blockchain.

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A newly published report by the Monetary Authority of Singapore (MAS), reveals details of ‘Project Ubin’ its blockchain effort “which places a tokenized form of the Singapore Dollar (SGD) on a distributed ledger” platform.

The project is a part of the central bank’s joint-endeavor with blockchain consortium R3, which notably launched the ‘R3 Asia Lab’ in Singapore in November. Soon after, the central bank announced the development of a blockchain proof-of-concept pilot to facilitate interbank payments. The project was Project Ubin, before it got its name.

In March this year, the MAS completed the first phase of that pilot and revealed the token powering the interbank blockchain platform – a central bank-issued digital currency. Participating banks deposited cash as collateral in exchange for these digitized dollars, with payments and transfers between member banks settled using the MAS-issued digital currency. Ultimately, the banks would swap the digital currency to cash.

A Private Ethereum Blockchain

Now, in its report that goes with the tagline “The future is here”, the MAS has detailed findings of Project Ubin.


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A technical excerpt from findings of Phase 1 of its pilot, which successfully completed the proof-of-concept (PoC) project points to:

A working interbank transfer prototype on a private Ethereum network…(and) successfully conducted end-ot-end integration between the private Ethereum network and MEPS+.

MEPS+ is the central bank operated Electronic Payment System, the national payments rail platform which enables domestic and international payments in Singapore.

The central bank also tested JPMorgan-developed Quorum, a private permissioned implementation of Ethereum with an enhanced focus on data privacy. One of the key observations include:

  • Quorum replaces the proof-of-work consensus model with a voting-based model.
  • Throughput was observed to be higher compared to the base Ethereum protocol.

Ultimately, a summary of the findings from Phase 1 concluded that it “was successful as it brought together a wide range of parties (including non-R3 member banks, R3 member banks, the Singapore Exchange and BCSIS as a technology provider).

The MAS also revealed that it also borrowed from Project Jasper, a similar effort undertaken by its Canadian counterpart, the Bank of Canada.

“Specifically, the architecture, code and lessons learned from Project Jasper were considered and applied to the Singapore context for Project Ubin,” the report’s authors wrote.

The next phases of the project would focus on “securities settlement by developing DvP (Delivery versus Payments) and Cross-border payments (PvP)”, the report concluded.

“We look forward to the next phases of our project which will develop trial applications for securities settlement andcross-borderr payments,” stated the central bank’s Fintech chief Sopnendu Mohanty.

Featured image from Shutterstock.

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MAS relaxes some rules on provision of robo advisory services, Banking News & Top Stories Times

SINGAPORE - The Monetary Authority of Singapore (MAS) released on Wednesday (June 7) a public consultation paper on proposals to facilitate the provision of robo advisory services in Singapore.

At least two firms - Autowealth and Stashaway/AWP - have already been approved in recent months to offer such services.

Financial institutions currently regulated under the Securities and Futures Act (SFA) and Financial Services Act (FAA) can already provide robo advisory services, and some, including OCBC Bank and UBS, have started to do so.

MAS has also received indications of interest from new entities intending to offer robo advisory services to retail investors.

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To make it easier for such entities to operate in Singapore, MAS intends to refine licensing and business conduct requirements.

First, digital advisers that operate as fund managers under the SFA will be allowed to offer their services to retail investors even if they do not meet the track record requirement, provided they meet certain safeguards.

These safeguards include offering diversified portfolios of non-complex assets and having key management staff with relevant experience in fund management and technology. They are also required to undertake an independent audit of their robo advisory business within a year of operation.

Robo advisers that operate as financial advisers under the FAA will be allowed to assist clients to execute their investment transactions and rebalance their clients' investment portfolios in collective investment schemes without the need for an additional licence under the SFA.

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MAS lays out proposals to ease entry of digital advisory businesses to Singapore, Government & Economy TIMES

DIGITAL advisers or robo-advisers in Singapore operating as fund managers under the Securities and Futures Act (SFA) will be able to offer their services to retail investors even if they do not meet track record requirement, provided they fulfil certain safeguards.

These safeguards include offering diversified portfolio of non-complex assets, having key management staff with relevant collective experience in fund management and technology, as well as having an independent audit of the digital advisory business within one year of operations.

This is a key proposal by the Monetary Authority of Singapore (MAS) as it moves to refine the licensing and business conduct rules to make it easier for entities offering digital advisory services to operate in Singapore, in what it said would "support innovation in financial services".

MAS on Wednesday said financial institutions now regulated under the SFA and Financial Advisers Act (FAA) can already provide digital advisory services. Some, it added, have started to do so.

The regulator said it has received indications from interested new entities that intend to offer digital advisory services to retail investors.

The availability of such services would "widen investor choice to low-cost investment advice", MAS said.

Other key suggestions raised in the paper are:

- Digital advisers that operate as financial advisers under the FAA would be allowed to help clients execute investment transactions such as passing their trade orders to brokerage firms.

They would also be able to re-balance their clients' investment portfolios in collective investment schemes without the need for an additional licence under the SFA. This licensing exemption is to be made available to non-digital advisers.

- Digital advisers can seek exemption from the FAA requirement to collect the full suite of information on the financial circumstances of a client, such as income level and financial commitments, if they can satisfactorily mitigate the risks of providing inadequate advice based on limited client information.

"While facilitating new business models, MAS will require providers of digital advisory services to manage the new technology risks associated with these activities," the regulator said.

It said unlike conventional financial advisory services, the delivery of digital advisory services relies on the use of algorithms and online tools to analyse client data and recommend investment portfolios.

"As digital advisory tools may be susceptible to technology risks such as erroneous algorithms and cyber threats, MAS has set out expectations on the governance and management oversight to be adopted by digital advisers, including the need to put in place a robust framework governing the design, monitoring and testing of algorithms. This includes having adequate board and senior management oversight and compliance arrangements to monitor the quality of advice provided."

The public consultation will end on July 7, 2017. A copy of the public consultation paper is available on the MAS website.

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IFC and Monetary Authority of Singapore partner for FinTech advancement in ASEAN | FinTech

IFC, a member of the World Bank Group and the Monetary Authority of Singapore (MAS)have signed a memorandum of cooperation, agreeing to work together to establish and develop the ASEAN Financial Innovation Network (AFIN). The network aims to facilitate broader adoption of financial technology (FinTech) innovation and development in ASEAN, while enhancing economic cooperation in the region.

Through AFIN, IFC and MAS plan to establish a regional network to help financial institutions, FinTech firms and regulators address issues of connectivity, local compliance and cross border compatibility. AFIN will also evaluate options to create an industry “sandbox” to provide a cloud-based testing environment through which banks and FinTech players can develop, test and refine digital finance and inclusion solutions.

Further to the 2016 Singapore FinTech Festival, this initiative has emerged from discussions between IFC, MAS and the ASEAN Bankers Association (ABA), and through their engagement with the broader financial and FinTech ecosystem in the region. This memorandum between MAS and IFC is the first step in an initiative which will also foresee ABA playing an important role in helping to expand access to financial services across the region.

Mr. Sopnendu Mohanty, Chief FinTech Officer, MAS, said, “We believe that innovation and digital technology can play a decisive role in enhancing financial access for a wider population. MAS is pleased to partner with IFC and further its discussions with ABA to help establish an industry sandbox infrastructure that promotes real-time collaboration and financial innovation. This industry sandbox will be a cloud-based marketplace for distribution of FinTech solutions to financial institutions located in multiple jurisdictions. We hope that this platform could also spur discussions amongst participating regulators on cross-border policy harmonisation across ASEAN.”

“The initiative builds on IFC’s efforts to deepen access to finance for underserved segments of the population, said Vivek Pathak, IFC’s Director for East Asia & the Pacific. “In today’s world it is feasible to reach these segments of the population at a fraction of the cost and at a speed that was not feasible earlier. New business models resulting from digital transformation of financial services and FinTech adoption in the region can create new markets that will lead to a higher level of prosperity. The end desired state is for financial institutions to be able to embrace innovation and collaboration more easily, and for innovations to spread more easily across the region. AFIN will enable banks, microfinance institutions, and other financial services providers to innovate across channels, products, and processes. Such innovation can unlock opportunities to better serve their clients, address unmet needs in their markets, and achieve sustainability through lower costs and more efficient service delivery.”

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