«السوق»: اعتماد تنظيم ممارسة أعمال خدمات المستشار الآلي

The Capital Market Authority's Board has approved amendments to the Financial Market Institutions Regulation, which included organizing the practice of providing robo-advisory services using algorithms and modern technological means for managing client investments, according to predetermined investment strategies. These services will be provided through financial market institutions that have a license to practice investment management or fund management, following a trial period conducted by licensed fintech companies within the financial technology lab, and allowing their provision by licensed financial market institutions in investment management.

Market Efficiency

The approved amendments aim to enhance market efficiency and expand the range of financial services provided through modern technologies, offering innovative and effective solutions for investors and opening new investment channels suitable for different segments, especially individual investors.

The approved regulatory amendments included several requirements aimed at ensuring the safety and efficiency of the services provided through the robo-advisor. The amendments obligated financial market institutions to notify the authority in advance of the strategies used in building and managing investment portfolios and any updates that occur before making them available to clients on the platform. The amendments also required market institutions to establish monitoring systems and procedures to ensure the safety and efficiency of the algorithms and technologies used, and to conduct periodic tests to verify the reliability and effectiveness of these technologies in achieving their objectives, at least ten days before making them available to clients on the platform.

Standards and Requirements

The approved amendments allowed financial market institutions holding a license to practice investment management or fund management to provide robo-advisory services, provided that the investments in the investment portfolio are not concentrated in a single asset or securities from a single issuer. In the case of providing robo-advisory services on securities issued or listed outside the Kingdom, those securities must be subject to supervision by a regulatory authority, according to standards and regulatory requirements at least similar to those applied by the authority.

The regulation specified standards for financial market institutions to disclose details and mechanisms of the robo-advisory service to their clients, including clarifying the strategies used in building and managing investment portfolios, asset selection criteria, distribution provisions, and the rebalancing mechanism for investment portfolios, along with defining additional responsibilities related to job registration, including requiring institutions to register the Chief Information Officer responsible for managing and monitoring the technological systems used in providing the robo-advisory service.

Disclosure Obligation

The approved amendments obligated financial market institutions to disclose on the platform through which the robo-advisory service will be provided the role of algorithms and the mechanisms relied upon in providing the robo-advisory service and the associated risks, in a fair, clear, accurate, and non-misleading manner that is appropriate for the targeted client classification.

According to the approved amendments, financial market institutions must present a performance record of investment portfolios since their inception, including clarifying the criteria and foundations for measuring the performance of the investment portfolio and the total returns achieved after deducting actual expenses, and publish this information on the websites of financial market institutions.