The Securities Commission Malaysia has provided application details for a new category of portfolio management licence called the digital investment management (DIM) licence.
Since May 2017, when plans for the licence were initially announced, the commission said that it received significant interest from both incumbent capital market players and start-ups.
“The digital revolution has forced traditional financial services institutions to rethink their distribution channels in order to remain relevant,” the commission said in its annual report.
The licence will be issued to qualified fund houses that plan to be involved in automated discretionary portfolio management services.
The plan is to allow asset managers to use questionnaires to profile client risk appetite and assess their needs. Based on investor input, a portfolio will be assigned, while the digital investment manager conducts automated re-balancing and reallocation on behalf of the client.
To obtain the license, the asset managers will have to demonstrate automated investment capability, including risk profiling, suitability assessment, asset allocation and rebalancing. The commission said applicants will not be eligible if only limited parts or only non-core parts of the investment services are automated.
Applicants must also have a “user-centric” tool to service investors.
“Delivery of services to target investors must include user-centric interface and experience, integrated investor education on the services offered to create greater confidence, trust and engagement, and a transparent fee structure,” the report stated.
Licensees will also have to employ people who have sufficient understanding of the risks and rules of the algorithm applied. Cyber-security measures must also be demonstrated.
In July last year, shariah-compliant robo-advisory platform, Algebra, was launched in Malaysia. Algebra, which is operated by Singapore-based Farringdon Asset Management, uses a machine-learning strategy in its investment strategy.
However, the robo-advisory unit is currently registered with Labuan, the only offshore financial hub in Malaysia, and regulated by the Labuan Financial Service Authority, according to its website.
Separately, Malaysia’s central bank launched a fintech regulatory sandbox in 2016. The sandbox allows fintech companies – even those without a presence in Malaysia – to participate in it for a testing period of up to 12 months.