The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) has today issued its regulatory framework for Digital Investment Managers (also known as ‘robo-advisors’), operating in ADGM.
Digital Investment Managers provide investment management services using algorithm-based tools and technology to interact with more tech-savvy clients. This technology allows investment managers to provide tailored investment management services to clients in a cost-effective and scalable way. Digital Investment Managers have the potential to play an important role in promoting financial inclusion and providing a wider range of options for retail client investors in the Middle East and Africa region. To support the industry, the FSRA has prepared this guidance to illustrate how its regulatory framework applies to these businesses and how robo-advisors can operate more effectively in ADGM.
Mr Richard Teng, CEO, Financial Services Regulatory Authority of ADGM, commented: "Robo-advice leveraging AI and data analytics is an area of FinTech that has enormous potential to improve investment decision making in the Middle East and Africa region. With this guidance, we aim to make it easier for digital investment businesses to operate in ADGM and in turn provide investors with greater access to professional investment tools to help achieve their financial goals. As an international financial centre, ADGM actively enhances its framework and platform to support innovation and the varying financial needs of businesses, investors and consumers. We look forward to welcoming more robo-advisors to establish their presence in Abu Dhabi in ADGM and support investors with their innovative solutions.”
The guidance outlines the key following areas:-
(i) regulatory permissions that may be required to provide digital investment services in or from ADGM
(ii) how the FSRA will apply its authorisation criteria in key existing areas of technology governance, suitability and disclosure, and newer areas such as algorithm governance.
The FSRA’s requirements, with respect to algorithm governance, are closely calibrated to match international best practices and incorporate principles of fairness, transparency and accountability. These include requirements for:
human oversight over the design, performance and security of the algorithm model;
ensuring that the algorithm model is not affected by possible behavioural biases;
adequate safeguards to protect the integrity of the algorithm model; and
ensuring the outcomes produced by the algorithm model are explainable, traceable and repeatable.
In line with the FSRA’s risk-proportionate regulatory approach and framework, the guidance also states that the FSRA will permit Digital Investment Managers to hold a lesser amount of prudential capital should they meet the stipulated criteria and requirements.