By Dickson Loo & Joseph Cheah
Introduction
‘Asset management’ or ‘capital market activities’ are general terms used to describe a plethora of exercises, including dealings with securities, private retirement schemes, and financial planning. How exactly are these activities governed in Malaysia? What safeguards are afforded to investors and the general public?
In this article, we aim to provide a brief insight into these matters.
In Malaysia, the above activities are governed by the Securities Commission (“SC”) under the following laws/guidelines:
- Capital Markets and Services Act 2007 (“CMSA”);
- Securities Commission Malaysia Act 1993;
- Securities Industry (Central Depositories) Act 1991; and
- Guidelines and/or regulations issued by the SC.
Capital Markets Services License for ‘Regulated Activities’
Generally, under the CMSA, a capital markets services license (CMSL) is required to conduct the following ‘regulated activities’:
- dealing in securities;
- dealing in derivatives;
- clearing for securities or derivatives;
- fund management;
- dealing in private retirement schemes;
- advising on corporate finance;
- investment advice; and
- financial planning.
Requirements for a CMSL Application
As part of the SC’s effort in safeguarding investors’ interests and rights, the SC requires prospective applicant of the CMSL to comply with a list of stringent requirements which include, amongst others:
- being a member of an alternative dispute resolution body;
- to engage auditors that are registered with the Audit Oversight Board of the SC;
- possess a sufficient level of organizational competence;
- key management members and controllers of the applicant to be ‘fit and proper’;
- having sufficient shareholding requirements; and
- satisfying the minimum financial requirements for the specific regulated activity.
Whilst a license to carry out regulated activities are granted out to successful applicants by the SC, the said license is not all-inclusive and is only issued out on a need-to basis.
This means that if an applicant is only involved in the business of a REIT manager, the applicant will only be granted an asset management license that is restricted to real estate investment trusts.
Exceptions to the license requirement for the conduct of ‘Regulated Activities’
Notwithstanding the above, there are exceptions to the general rule where a company/individual is allowed to engage in ‘Regulated Activities’ without any license. These limited set of circumstances are listed out under Schedule 3 (Specified Persons) and Schedule 4 (Registered Persons) of the CMSA.
Schedule 3
Schedule 3 relates to, amongst others, incidents where an accountant, lawyer or trust company is required to carry out any parts of the regulated activities on a purely incidental basis to the practice of his profession/ or the carrying on of the company’s business.
Schedule 4
On the other hand, schedule 4 lists out the categories of companies/individuals that are considered ‘Registered Persons’. A Registered Persons is allowed to carry out certain regulated activities without having to apply for a CMSL.
This includes licensed banks, licensed insurance companies, and individuals registered with a body approved by the SC.
Protection for Consumers
In Malaysia, the main statutory laws governing consumer protection are:
- The Consumer Protection Act 1999 which deals with general protection for consumers in relation to general goods and services; and
- The Financial Services Act 2013 (“FSA”) (with emphasis on Part VIII of the Act) which governs, amongst others, the banking and insurance industry, the payments system and foreign exchange matters. The FSA outlines the obligations of asset management companies which includes a list of prohibited conducts and imposes criminal liabilities for failure of compliance.
Further, as part of the SC’s mission to “to promote and maintain fair, efficient, secure and transparent securities and derivatives markets…“, the SC has also imposed various form of continuing obligations on asset management companies dependent on the types of investors involved (ie. accredited investors, high net-worth investors or retail investors). These continuing obligations can be glimpsed from the core principles enshrined by the SC in its guidelines.
Conclusion
Given the risky nature of capital market activities and its potential for the involvement of fraudulent conducts, it is unsurprising that the government imposes strict guidelines and safety measures to ensure the fairness and transparency of the exercise.
Moreover, with the increasing ease of participating in investment activities by the public and the inevitable rise of digital investment, these guidelines will play a significant role in protecting the interests of both the investee and the investor.