The robo advisory fund business incorporates innovative technologies into discretionary portfolio management services. It allows companies to offer automated, algorithm-based investment portfolio management advice to retail investors.
Fintech players specialising in robo advisory services have been "engaging with the SC over the past several months", according to one source, and confirmed by another.
"These engagements are aimed at helping SC to have a better understanding on the robo advisers' business model and algorithms, as well as for both parties to address their concerns before the licences are awarded," he tells Asia Asset Management (AAM).
"Based on progress of the engagements, the industry is confident that the first robo advisory licence in Malaysia may be awarded around June this year," he says.
But one source close to the regulator says the June timeline is "not set or cast in stone".
"The SC will definitely not rush into this," according to this person, who also says the regulator may issue two or three licences initially. However, it may not cap the overall number of licences to be issued.
"It all depends on whether the robo advisors are able to meet the requirements and address the concerns by the SC," the source says.
The SC’s DIM framework, introduced in May 2017, sets out several requirements for companies. Among other things, they have to ensure that the necessary technological capabilities are in place, including identification of a competent person in each company who has sufficient understanding of the risks and rules of the algorithm applied; that the outcomes produced by the algorithm are consistent with the robo advisor's strategy; and that the risk management framework is sufficiently robust to manage risks, including cyber security risks. The SC did not immediately respond to questions from AAM.
Securities Commission Malaysia (SC) may award its first batch of digital investment management (DIM) or robo advisory licences by the middle of the year, according to financial technology (fintech) sources.