The Securities Commission Malaysia (SC) recently introduced the Digital Investment Management (DIM) framework, specifically for entities that have already or are considering to tap into digital market services.
According to the SC, digital investment management is a fund management business which incorporates innovative technologies into discretionary portfolio management services and the DIM framework will allow approved licensees to offer their services.
The DIM framework was initiated solely for digital investment managers or robo advisors who provider automated discretionary portfolio management services.
The framework is part of the SC’s digital agenda for the capital market that aims to provide investors with a more convenient, affordable and accessible channel to manage and grow their The framework is intended to increase investor participation especially amongst the millennials through the easy access to active digitised channels. The digital investment managers could help increase participation rates through lower cost structures hence easing barriers to entry for younger investors especially those below the age of 45, the average age of investors according to internal research conducted by the SC.
To reinforce investor protection, specific conduct requirements that are appropriate to the distinctive characteristics of this new business model have been set out. These include requirements for the board to be accountable for the governance of the DIM business by ensuring that:
- The requisite technology capabilities are in place including identification of competent persons within the company who have sufficient understanding of the risks and rules of the algorithm applied;
- The risk management framework is sufficiently robust to manage risks associated with the offering of automated discretionary portfolio management services including cyber security resilience;
- The outcomes produced by the algorithm are consistent with the digital investment manager’s strategy; and
- Written policies are in place to monitor and regularly test the algorithm employed.
According to the SC, licensed entities may provide digital investment management services if they satisfy all requirements in the updated Licensing Handbook and Guidelines on Compliance for Fund Managers.