Abu Dhabi financial centre ADGM issues regulations for robo-advisers

Abu Dhabi Global Market (ADGM) has issued a new regulatory framework for digital investment managers (also known as robo-advisors), operating in ADGM, it was announced on Monday.

Robo-advisors provide investment management services using algorithm-based tools and technology in a cost-effective and scalable way.

The new regulatory framework issued by ADGM’s Financial Services Regulatory Authority (FSRA) addresses two key areas –

1. Regulatory permissions that may be required to provide digital investment services in or from ADGM

2. 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, a statement said.

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
* Ensuring the outcomes produced by the algorithm model are explainable, traceable and repeatable

The regulation 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.

Richard Teng, CEO, FSRA said: “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.”