The following frequently-asked questions (FAQs) cover key areas relating to the amendments to the securities laws. These amendments were passed by Parliament in September 2003 and came into effect on 5 January 2004.
The FAQs are intended as a broad general guide to the public. Readers are advised to refer to the specific provisions of the law for more details.
- What are the changes made to the SIA in relation to financial planning?
The SIA was amended to clarify the definition of “investment adviser”. An investment adviser now includes a person who carries on a business of analysing the financial circumstances of another person and provides a plan to meet that other person’s financial needs and objectives, including any investment plan in securities, whether or not a fee is charged. The activities of a financial planner fall within this definition.
Following this, any person who acts as or represents himself as being a financial planner is required to be licensed as an investment adviser by the SC. In addition, the use of the term “financial planner” is restricted to persons that are licensed by the SC under the SIA.
- What is the effect of the changes to existing financial planners?
Any person who acts as or represents himself as being a financial planner is required to be licensed by the SC. As such, anyone who wants to become a financial planner would need to apply for an investment adviser’s licence before he can act as or present himself as being a financial planner. Those who are currently carrying out activities as financial planners without an investment adviser’s licence are required to apply for the licence before 31 August 2004.
- Can an individual apply for the licence?
Yes, both corporations and individuals can apply for the investment adviser’s licence.
- When can I start applying for the licence? What is the procedure for applying for a licence?
Applications for an investment adviser’s licence can already be made under the existing “Guidelines For Application For Investment Adviser’s And Investment Representative’s Licences Under The Securities Industry Act 1983“. The existing licensing guidelines and procedures are available on the SC website at www.sc.com.my. The SC will also be releasing amended guidelines to fully facilitate applications in relation to financial planning.
- Will there be any difference between the licensing requirements for an investment adviser who does not intend to undertake financial planning activities and the licensing requirements for an investment adviser who intends to undertake financial planning activities?
The main difference would be in relation to the capital requirement and the minimum qualifications required. Investment advisers generally are required to have a minimum paid-up capital of RM500,000. In respect of individuals, there are requirements for them to have professional qualifications with three years direct and relevant experience in investment adviser activities and have passed the relevant Securities Industry Development Corporation (SIDC) module examination.
However, the capital requirement for those who only undertake financial planning activities is RM50,000. For individuals, they must also have the recognised qualifications, namely the Certified Financial Planners (CFP) or Chartered Financial Consultant (ChFC), and be a member of the Financial Planning Association of Malaysia (FPAM) or the Malaysian Association of Chartered Financial Consultant (MAChFC), as the case may be. In addition, they must also have three years relevant experience in the financial services sector. The SC will review the list of recognised qualifications from time to time.
- Can a holder of a dealer’s representative, fund manager’s representative or investment representative’s licence act as or represent himself as being a financial planner?
If the principal company intends to provide financial planning services, the relevant licensed representatives must have the CFP or ChFC qualifications before they can act as or represent themselves as being a financial planner.
- To whom should an application for an investment adviser’s licence be submitted?
All application forms and other additional documents as required in the licensing guidelines must be submitted to the SC at the following address:
The Licensing Department
Securities Commission Malaysia
3 Persiaran Bukit Kiara
50490 Kuala Lumpur
Tel: 603-6204 8000
Fax: 603-6201 5282
- What is the effect of not applying for the licence?
Those who act as or represent themselves as being financial planners without an investment adviser’s licence would be in contravention of the licensing requirements under the SIA and would be liable, on conviction, to a fine not exceeding RM1 million or to imprisonment for a term not exceeding 10 years, or to both.
Recommendations by Adviser
The amendments seek to enhance investor protection by tightening the “know your client” requirement under section 40A of the SIA. The amendment clarifies that not only must the advisers take into account the information they possess on their clients investment objectives, financial circumstances and particular needs when giving advice, they must also ensure that the information in their possession is accurate and complete.
An adviser under section 40A of the SIA refers to a dealer, fund manager, investment adviser, dealer’s representative, fund manager’s representative or investment representative.
- What is the effect of the amendments to the provisions of the SIA relating to trust accounts?
The amendments seek to ensure the necessary controls are in place for the protection of assets held by custodians and that custodians appointed for trust accounts are reliable professionals.
In this regard, in addition to the categories specified under section 47C, the amendments provide that the SC may specify any other category of persons to act as custodian under this provision. The SC has also specified the following categories of institutions as “custodian” under section 47C(10)(d) of the SIA, effective 5 January 2004:
- Trust companies incorporated under the Trust Company Act 1949;
- Amanah Raya Bhd;
- Subsidiary companies providing nominee services that are 100% directly owned by licensed banks, finance companies, merchant banks or stockbroking companies.
Custodians are also required to take appropriate measures to ensure the identification and safekeeping of assets held by them on behalf of clients of the fund manager.
Fund managers are given a period of six months to transfer their client assets to the approved categories of custodians under this provision. However fund managers who hold the client’s assets themselves or through their subsidiaries must transfer the assets to the approved categories of custodians on an immediate basis.
- What orders can the SC make in the event that a fund manager has breached the law?
A new section 47F has been introduced to enable the SC to direct a fund manager not to deal with the property of its clients, or to transfer the client’s property and monies to a trust company registered under the Trust Companies Act 1949 or any other person as may be specified by the SC. This can be done if the SC is satisfied that the fund manager has breached any provision of the SIA or term or condition of its licence or where the SC is of the view that the interests of the clients of the fund manager are jeopardised.
- What is the effect of the revocation of the Securities Industry (Exempt Fund Manager) Order 1997?
As part of efforts to rationalise the fund management industry, the amendments to the SIA revoke the Securities Industry (Exempt Fund Manager) Order 1997. This exemption was granted in 1997 to any person acting in the capacity of a manager or trustee of a unit trust scheme approved by the SC under section 32 of the SCA.
Those within this category are now deemed licensed for a grace period of one year from the date of the coming into force of this provision, i.e. 5 January 2004, after which they must obtain a fund manager’s licence from the SC if they undertake any activities of a fund manager.
- What is the range of administrative powers of the SC under section 11?
In addition to fines of up to RM1 million, the remedies available under the section now allow the SC to instruct the offender(s) to take such steps as the SC may direct to remedy the breach including making restitution to the person(s) aggrieved by the breach.
In making a restitution order, the SC must consider whether profits have accrued to the offender (person in breach) or whether any person has suffered loss as a result of the breach.
The new section 28B of the SIA provides the SC with similar administrative powers and remedies in relation to licensed persons.
- Who can the SC take action against under section 11?
Section 11 has been amended to provide clarity in terms of the list of persons to whom the securities laws and the rules of the exchange apply. These are the exchange holding company and its business subsidiaries such as the exchange, the central depository and clearing house. The list also includes stockbroking companies, clearing members of the clearing house, listed corporations and directors and advisers of such listed companies.
- What is the effect of the amendment of section 28B of the SIA?
The new section 28B of the SIA provides the SC with a similar range of administrative powers andremedies, as provided for in section 11, against a licensed person where the person fails to comply with the securities laws or any condition of licence granted or when such person acts in a manner that is prejudicial to its clients or to public interest.
- What is the effect of the amendment of sections 33D and 158 of the SCA?
Section 33D has been amended to expand the range of administrative action which the SC may take against a person for non-compliance with the Malaysian Code on Take-over and Mergers 1998, to include instructing that person to remedy the failure or to make restitution to any person(s) aggrieved by the breach.
Section 158 has been amended to expand the range of administrative actions which the SC may take against a person for failure to comply with any written notices, circulars, conditions or guidelines issued by the SC, to include instructing that person to remedy the failure or to make restitution to any person(s) aggrieved by the breach.
- How has the scope of SC’s civil enforcement powers been extended?
The scope of section 100 of the SIA has been significantly expanded to allow the SC to apply to the High Court for an order in respect of both an actual or prospective contravention of any “relevant requirement”. In this regard, the range of offences comprising a “relevant requirement”, has been expanded to include contraventions of any securities laws and any other laws under the purview of the SC.
- Is section 100 available to market institutions?
Yes. Section 100 of the SIA provides for the exchange holding company, stock exchange or recognised clearing house to apply to the High Court for an order where a director has already contravened a requirement imposed under the rules of the market institution.
- Are any of these remedies available to investors?
Yes. Any person who has been aggrieved by an alleged contravention by another person of a relevant requirement as defined under section 100 of the SIA, may make an application to the High Court for an order under the provision.
- What are the types of orders that can be applied for under section 100?
Among others, section 100 covers orders restraining a person from dealing with specified assets, restraining a person from exercising voting rights in specified securities, restraining a person from issuing securities, and in the case of a director, removing him from office.
- Are these amendments reflected in any other securities laws?
Yes, section 106C of the Futures Industry Act 1993 (FIA) and section 58 of the Securities Industry (Central Depositories) Act 1991 (SICDA) have also been rationalised to reflect these amendments and the scope of their applicability in the context of the market or service concerned.
Compounding of Offences
- How does the amendment of section 124 of the SIA enhance the ability of the SC to compound offences?
This amendment expands the range of offences that may be compounded as it now applies to Parts III, IV, V, VI, VII, X and XI of the SIA (previously, section 124 of the SIA only covered Part IV, V and VII).
- What is the scope of the whistle-blowing provisions which were recently introduced?
Whistle-blowing in the context of the SIA involves the disclosure of information to the relevant authorities by auditors and specific employees of a public-listed company who in the course of carrying out their duties, discover any breaches of the securities laws or the rules of the stock exchange or any matter which may adversely affect, to a material extent the financial well being of the listed corporation.
- Is whistle-blowing a mandatory requirement and who does the requirement apply to?
Section 99E of the SIA applies to auditors of listed corporations. Under this provision, where the auditor of a listed corporation is of the professional opinion that there has been a breach of the securities laws or rules of the stock exchange or any matter which may adversely affect the financial position of a listed corporation, the auditor is under a statutory obligation to report such a breach to the SC and the exchange.
- Can an auditor be sued in respect of the disclosure (unauthorised by the company), made pursuant to this section?
The law provides an auditor with statutory protection from any action in court where a report is made in good faith.
- What is the effect of the new section 99F of the SIA?
Section 99F provides protection to certain categories of employees who inform the SC and the exchange of any information relating to breaches of securities laws or the rules of the stock exchange or any matter which may adversely affect the financial position of the listed corporation.
The persons to whom such protection is accorded are the chief executive officer, the internal auditor, the company secretary and any officer responsible for preparing or approving financial statements or financial information of the listed corporation.
- What is the scope of the protection provided under section 99F?
This provision provides statutory protection to the whistle-blower from any retaliation in the form of dismissal, harassment or discrimination at work, or any action in court, in respect of the disclosure made by the whistle-blower to the SC and the exchange.
- Is the employee concerned under a statutory obligation to make the disclosures under section 99F?
No, the provision does not impose a statutory obligation on the relevant officeholder. Where the employee does make a disclosure in good faith and in the intended performance of his duties, the employee is accorded the statutory protection referred to above.
Strengthening of Clearing and Settlement Arrangements
The amendments to the SIA introduce a new Part XA which deal with the disapplication of insolvency laws in respect of securities transactions that are cleared through the recognised clearing house. These provisions are intended to ensure that the operations of the clearing house are not subject to legal challenge in the event of insolvency of any market participant.