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  • DA-2.2 DA-2.2 Testing and Updating Algorithms

    • DA-2.2.1

      Licensees providing digital financial advice must perform back-test to ensure that the methodology reliably produces an output that is consistent with the intended investment recommendation. Such back-testing must be performed at periodic intervals and when changes are made to the tool.

      Added: April 2019

    • DA-2.2.2

      Back-testing in Paragraph DA-2.2.1 refers to testing the digital financial advice tool that seeks to estimate the performance of a strategy or model if it had been employed during a past period. This requires simulating past conditions with sufficient detail.

      Added: April 2019

    • DA-2.2.3

      Licensees providing digital financial advice must maintain and document the policies, procedures and controls to monitor and test their algorithm. They must ensure that, at a minimum, the following process are in place:

      (a) have a documented test strategy that explains the scope of the licensee's testing of algorithms which should include
      i. test plans,
      ii. test cases,
      iii. test results,
      iv. defect resolution (if relevant), and
      v. final test results.
      (b) establish robust testing of algorithms to occur before digital financial advice is first provided to a client, and on a regular basis after that; and
      (c) conduct stress tests at least once a year under various scenarios including extreme adverse and unpredictable market conditions.
      Added: April 2019

    • DA-2.2.4

      Licensees providing digital financial advice must ensure that they have adequate human resources with the competency and expertise to develop and review the methodology of the algorithms.

      Added: April 2019

    • DA-2.2.5

      Licensees providing digital financial advice must not outsource the key processes and management of the client facing tool.

      Added: April 2019

    • DA-2.2.6

      Licensees providing digital financial advice may choose to outsource the development (based on the approach, methodology and design input provided by the licensee) and the day to day maintenance of client-facing tools to a third party. However, the licensee remains responsible for the underlying approach to financial advice, the methodology, design input and also the quality of the advice provided. In order to be able to assume this responsibility, the licensee must understand and control the rationale, risks and decision rules behind the algorithm. Licensees should, nonetheless, subject the outsourcing service provider to appropriate due diligence processes as required by the relevant rules on outsourcing in Module RM.

      Added: April 2019