Promoting Responsible Businesses and Shared Accountability

The SC continued to encourage intermediaries and businesses to adopt a broader stakeholder-centric approach in their business strategies and risk management. This is an essential element for firms to reduce the likelihood and impact of misconduct. To reinforce good culture, the SC implemented and supported various initiatives focused on enhancing the understanding of the importance of governance. Regular and open dialogue with key stakeholders were also held, including with government agencies, businesses, firms that the SC regulates and even universities.

Corporate Governance – Ensuring Board Diversity and ESG Fitness

In 2022, the SC continued efforts to promote the adoption of good corporate governance practices in the capital market and support the Government’s initiatives to strengthen the internal governance and stewardship of government-linked investment companies (GLICs) as well as institutional investors in general. Highlights of the SC’s efforts are as follows:

SC Supports PERKUKUH Governance Initiatives
Launch of the Principles of Good Governance for GLICs⁵
The Principles of Good Governance for GLICs (PGG) was launched on 15 April 2022 by the Minister of Finance, YB Senator Tengku Datuk Seri Utama Zafrul Tengku Abdul Aziz. The PGG is the first deliverable under the Government’s PERKUKUH initiatives. It sets out the baseline governance best practices that GLICs are expected to adopt. Led by the Ministry of Finance (MOF), the SC supported the development of the PGG as the subject matter expert, leveraging the SC’s experience in developing the Malaysian Code on Corporate Governance (MCCG) and advocating as well as monitoring its adoption by PLCs.
Launch of the Malaysian Code for Institutional Investors 2022⁶
The Malaysian Code for Institutional Investors (MCII 2022)7 that was launched on 23 September 2022 by the Minister of Finance at the Institutional Investors Council Malaysia – Securities Industry Development Corporation (IIC-SIDC) Corporate Governance Conference 2022 at the SC outlines the broad principles and guidance of effective stewardship by institutional investors on their investee companies. The launch of MCII 2022 was also one of the deliverables under PERKUKUH. It is an update to the first edition of the MCII which was released in 2014. The SC as the Chair of PERKUKUH Working Group 12 worked closely with the IIC and MOF to support the review and enhancement to the MCII 2022.
Participation in the 43rd Organisation for Economic Co-operation and Development Corporate Governance Committee Meeting
The 43rd Organisation for Economic Co-operation and Development (OECD) Corporate Governance Committee (CGC) meeting was held from 7 to 8 June 2022 at the OECD Headquarters in Paris, and and the SC represented Malaysia. The CGC reviewed the first draft revision to the G20/OECD Principles of Corporate Governance (Principles), and the SC made several interventions on the revision including on the proposed changes related to the oversight of sustainability risks and opportunities, the use of technology to conduct general meetings and the role of stewardship codes in supporting shareholder activism. Written comments were also submitted by the SC for the OECD’s consideration.
Collaboration with universities on corporate governance8
In 2020, the SC entered into a MOU with Monash University Malaysia (Monash), Universiti Malaya (UM) and Universiti Sains Malaysia (USM) as a continuation of the effort to promote early understanding and appreciation of good governance among youth and to support their development as future leaders and agents of positive change. A signing ceremony was also held between the SC, Monash and UM on 18 August 2022 at the SC.

The MOUs formalise collaboration which takes the form of among others, guest lectures by the SC and research collaborations on current corporate governance issues. A guest lecture on ‘The Role of Financial Reporting in the Corporate Governance Landscape’ was conducted on 11 May 2022, and had an attendance of more than 50 students and lecturers from Monash.
Enhancement of the Sustainability Reporting Framework for listed issuers9
Taking cognisance of the need to:
improve the quality and comparability of sustainability disclosures by listed issuers and ensure that such disclosures address the information needs of relevant stakeholders;
align the disclosure requirements with international best practices; and
promote the adoption of sustainable business practices by listed issuers;

engagements were carried out with Bursa Malaysia, culminating into the establishment of the enhanced Sustainability Reporting Framework (SRF) on 26 September 2022.

Under the enhanced framework, listed issuers in the Main Market are expected to disclose information on–

a set of common sustainability matters and indicators deemed material across all sectors;
climate risks and opportunities which are aligned with the recommendations of the Taskforce on Climate-Related Financial Disclosures (TCFD);
data and performance targets (if any) on the indicators of at least three years in a prescribed format; and
whether the Sustainability Statement of the company has been subjected to internal review by internal auditors or independently assured.

For the ACE Market, listed issuers will be required to disclose the above, with the exception of the information on climate risks and opportunities aligned with TCFD recommendations, where listed issuers on the ACE Market are required to disclose a basic transition plan towards a low carbon economy.

The enhanced SRF introduced a phased approach on implementation where listed issuers in the Main Market and ACE Market are accorded with a reasonable grace period to comply with the requirements. The requirements under the enhanced framework will be implemented on a phased approach beginning with the annual report for financial year ending 2023 onwards.
Development of the Leading for Impact Programme10
The development of Leading for Impact Programme (LIP) is in line with the SC’s CG Strategic Priorities 2021-2023 aimed at strengthening the ESG fitness of boards. On 6 April 2022, the Institute of Corporate Directors Malaysia (ICDM) was appointed by the SC as the knowledge partner to conduct LIP, in line with their mandate to enhance the overall effectiveness of boards. LIP will be opened for enrolment by the first quarter of 2023.
Establishment of a small and medium enterprises Governance Working Group11
A small and medium enterprises (SME) Governance Working Group (Working Group) was set up to promote early adoption of corporate governance practices by MSMEs. This imperative was highlighted in the Twelfth Malaysia Plan as well as the SC’s Corporate Governance Strategic Priorities 2017 - 2020. The first meeting was held virtually on 8 March 2022 and attended by the members of the Working Group which comprised representatives from the SC, Ministry of Entrepreneur Development and Cooperatives (KUSKOP), SME Corporation Malaysia (SME Corp. Malaysia) and Malaysian Institute of Corporate Governance (MICG). The Working Group is developing a SME Governance Toolkit for SMEs which will strengthen their governance culture, framework and practices and support the resilience and long-term success of the businesses.
Release of the Corporate Governance Monitor 202212
On 1 December 2022 the SC released its Corporate Governance Monitor 2022 (CG Monitor 2022) which presents updates on the adoption of the 2017 and 2021 editions of the MCCG as well as the quality of corporate governance disclosures. Adoption level across majority of the best practices remained positive, with 30 out of 48 practices recording adoption level of at least 90% (2021: 24 practices). Two thematic reviews were also conducted as part of the CG Monitor 2022, namely on the ‘Sustainability disclosures of 50 companies in the sectors which are emissions, foreign labour and export intensive (S50 Review)’ and the ‘Demography of Senior Management of the Top 100 Listed Companies’.

Read more on media release ‘SC Report: Adoption Levels of Corporate Governance and Sustainability Best Practices by PLCSs Remain Positive’.
MCCG ADOPTION AND QUALITY OF DISCLOSURES

Annual Transparency Reporting by the Audit Firms

In 2022, following the implementation of the AOB’s Annual Transparency Reporting framework in 2021¹³, nine audit firms (2021: eight audit firms) registered with the AOB met the criteria set and produced an Annual Transparency Report (ATR) based on the audit firm’s fiscal year-end. In addition to sharing of the ATR with the Audit Committees (AC) of the audit firm’s public interest entity (PIE) clients in the first year of implementation, their respective ATR’s have been uploaded on their websites.

To understand how Audit Committees make use of the ATR and identify any areas for improvement, the AOB conducted a survey with the AC on Transparency Reporting by Audit Firms between April to June 2022. 94% of the AC found that the information disclosed in the transparency reports was useful to facilitate the selection and/or reappointment of the auditors.

The AOB’s Conversation with Audit Committees

One of the AOB’s capacity-building initiatives was to continue engaging with the AC of PIEs, keeping them updated with the development in the audit profession.

In 2022, the AOB organised three sessions of the AOB’s Conversation with the ACs. It provided a platform for the AOB to share its observation and findings from inspections of audit firms with the AC and guide them on relevant actions to take following the audit findings. The majority of the AC highlighted that the firm’s information and the audit quality indicators disclosed in the Annual Transparency Reports of the audit firms are useful for them to assess the competency and capability of the auditors.

Refer to the AOB Annual Report 2022, Stakeholder Engagements and Capacity-Building Initiatives.

(Link will be provided)

Proposed Enactment of Consumer Credit Act to Enhance Consumer Credit Protection

In line with the Government’s initiative to strengthen the protection for credit consumers in Malaysia, the Consumer Credit Oversight Board Task Force (CCOB Task Force) was set up in July 2021 to drive the enactment of the new Consumer Credit Act (CCA)¹⁴.

The CCA seeks to provide a comprehensive framework towards regulating the conduct of entities carrying out the business of providing credit or credit services, with an immediate focus on those that are not currently subjected to direct regulation by any authority. This includes the regulation of new forms of credit such as ‘Buy Now Pay Later’ providers.

The CCA will pave the way for the establishment of the Consumer Credit Oversight Board (CCOB) as an independent competent authority to oversee consumer credit providers and credit service providers. The CCA will adopt a federated regulatory approach modelled after the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFPUAA).

The proposed transformation of the consumer credit regulatory architecture will be undertaken in stages and will see the establishment of an independent competent authority for consumer credit business, that is the CCOB, which will regulate those entities which are currently unregulated such as buy now pay later, debt collection agencies and impaired loan buyers as well as complement the oversight role of existing ministries and agencies hereafter referred to as RSA. In this regard, as the RSA for the capital market, SC will continue to regulate its regulatees in accordance with securities laws while ensuring that they also comply with new regulations and standards issued under the CCA to provide consistent protection to credit consumers.

Read more on Consumer Credit Oversight Board Task Force Consultation.

Corporate Governance Strategic Priorities 2021-2023 (CG Strategic Priorities 2021-2023).
Ibid.
The MCII 2022 now features seven principles and enhanced guidance for the institutional investors, and a ‘Stewardship Spotlight’ which highlights what is expected of investee companies in relation to key corporate governance and sustainability issues including the recommended voting decisions associated with the issues. In terms of reporting, signatories of the MCII 2022 are expected to issue an annual Stewardship Statement which provides meaningful information and discussion on the adoption of the Code and the latest developments in relation to the signatories’ stewardship activities, actions and outcomes.
CG Strategic Priorities 2021-2023.
Ibid.
Ibid.
Ibid.
Ibid.
The AOB’s Annual Transparency Reporting which was first introduced in 2019 and implemented in 2021, requires audit firms which meet certain requirements to publish a report containing, among others, information on the firm’s legal and governance structure, measures taken by the firm to uphold audit quality and measure risks, and information on the firm’s indicators of audit quality.
The CCOB Task Force is led by the MOF, BNM and the SC and works in close collaboration with the Ministry of Domestic Trade and Consumer Affairs (KPDNHEP), the Ministry of Housing and Local Government (KPKT), the Ministry of Entrepreneur and Cooperatives Development (KUSKOP) and Malaysia Co-operative Societies Commission (SKM).

Mitigating Systemic Risks And Promoting Financial Stability

Enhanced Risk Governance Framework

In 2021, the SC-wide risk governance framework was enhanced as part of an overall initiative to have an effective integrated and predictive risk surveillance to maintain regulatory agility.

The structured risk governance framework integrated the wider spectrum of risks such as technology, cyber and conduct risk at the SC’s Systemic Risk Oversight Committee (SROC) and Accounting, Market and Corporate Surveillance Committee (ACMS).

Intensified surveillance

The SC continued to intensify its surveillance of systemic risk to maintain market resilience and stability. Regular SROC engagements were held to deliberate concerns emanating from various segments across the capital market. Domestic equity and bond market, foreign fund flows and trade participation continued to be monitored closely for potential stress points.

In addition, measures and economic stimulus packages introduced by the government to weather the impact of COVID-19, market trading conduct and the financial position of listed companies were among the focus areas for discussion.

Thematic assessments

The SC also conducted thematic assessments covering investors’ fund flows, the position of firms, and policy decisions to ascertain the possible impact on the capital market. In 2021, the SC reviewed and enhanced its crisis indicators on potential emerging risks in the
capital market.

The enhanced crisis indicators provided a reference point for escalation to SROC when the identified indicators and triggers materialised and ensured prompt response to manage and prevent any issues of concern that might lead to a systemic crisis.

Joint regulatory discussions

In 2021, the SC conducted frequent joint regulatory discussions with other authorities such as Bank Negara Malaysia (BNM) and Labuan Financial Services Authority (Labuan FSA) to identify systemic risk concern areas within the financial and capital markets in Malaysia.

Monitoring of various components of the capital market

The SC continued its efforts to undertake a methodological and integrated approach to ensure any potential systemic risk was being monitored, mitigated, or managed. Figure 1 highlights the findings from the following risk assessments on the various components of the capital market.