[THE INVESTOR] Robo-adviser developers will be able to test their algorithms at a test bed run by Korean financial authorities, starting next month, and get approval for commercialization if the tests turn out to be successful.

The Financial Services Commission said on Sunday that the regulator will open a test bed for software developers that have robo-adviser algorithms that aren’t yet authorized for commercialization.

The FSC has been working to lift regulations related to investment advisory services in order to allow operations of such computer algorithm-based services in the country for the first time, under the regulator’s fintech -- financial technology -- initiative.

Globally, the investment advisory business by robots or computer algorithms based on analysis of big data is rapidly expanding. In the US alone, the market is estimated to balloon from $21 billion in 2015 to $86.8 billion by 2017, according to data by MyPrivateBanking, a financial research institute.

“Introduction of such services will help individuals receive advisory services that will help make smart decisions for efficient investments at lower costs via mobile devices,” said Kim Ki-han, director of the asset management department at the FSC. “Running the test bed is to imbue innovation into the asset management market and offer retail investors better chances of accumulating their assets.”

Robo-adviser algorithms analyze investors’ propensity for risks and their purposes of investing, and choose adequate asset types in accordance with the analysis. Among the selected assets, the algorithms again choose the most suitable financial products and execute the investment automatically or at the order of investors.

Any algorithm developers, investment advisers with related technologies or consortiums of businesses pertaining to the sector can apply for participating in the test bed early next month, the FSC said.

But the upcoming test bed will be confined to algorithms for investing in portfolios consisting of funds, derivative-linked securities and stocks. A single applicant can apply for a multiple number of algorithms.

Applicants will go under a three-stage examination for about seven months to get final approval for commercialization. A committee of 10 experts on computer algorithm, artificial intelligence and financial laws will be formed to examine the applicants’ algorithms, according to the FSC.

A secretariat office in charge of running the test bed will be set up at Koscom, a financial information technology solution provider. In mid-September, Koscom will open a website where developers can apply for participation. The website will also provide investors with information regarding the participants’ qualifications, daily performances of each portfolio being tested and announcements of the experts’ examination. 

“Investors will be able to learn and compare a number of robo-advisers running on a variety of algorithms and investment strategies on the website,” the FSC official said. “Examination of the algorithms will focus on rationality, suitability for investors, legal compliance, system security and safety.” 

By Song Su-hyun/The Korea Herald (song@heraldcorp.com)