Protecting Investors - Evolving the Regulatory Approach

Protecting Investors

The SC continued its holistic multi-pronged approach in protecting and empowering investors, especially in light of the rise in scams and unlicensed activities in the capital market. Additionally, the SC continued its efforts to empower investors through social media engagements and other investor education outreach programmes, both virtually and physically.

Combatting Scams and Unlicensed Activities

The SC observed the increase in the number of complaints and enquiries received in recent years, particularly since the COVID-19 pandemic and has been actively focusing its efforts to counter these activities.

Given the prevalence of online scams in particular, the SC strengthened its monitoring and surveillance of unlicensed and unregistered capital market activities offered online, including through websites and social media platforms, by taking a more proactive approach. To enable effective and efficient surveillance of such activities, the SC will continue to strengthen its capability and resources, including by leveraging technology.

Through its proactive approach in combatting scams and unlicensed activities, the SC seeks to act fast and stymie these activities through early intervention. This includes employing interventions which would disrupt the activities of the fraudsters through the blocking of websites, geo-blocking of social media pages and issuing Notices of Cease and Desist.

The SC also adopted a social media intervention strategy through which messages will be posted publicy on social media pages of suspected scammers and unlicensed operators to highlight the SC’s licensing requirements and penalties for breach of securities laws.

Read more on media release ‘SC Alerts Public on Rising Scams Promoted on Telegram’.

Ensuring that the public is alerted on scams and unlicensed activities is also important. As such, the SC regularly issues media releases and maintains an Investor Alert List to warn the public against participating in illegal scams and unlicensed activities.

Refer to the SC’s Investor Alert List.

What are Scams and Unlicensed Activities?

What are Scams and Unlicensed Activities?
Scams
Include investment scams involving the promotion of fake investment products or clone scams which impersonate legitimate entities.
Unlicensed activities
Involve persons carrying on the business of regulated activities without a licence or being registered with the SC.
What strategies were employed by the SC to combat scams and unlicensed activities?
Intervention
Swift action to stymie these activities.
Examples: Blocking of websites, Facebook, Telegram and Instagram, Notices of Cease and Desist, social media interventions.
Alerts
Warning the public on scams and unlicensed activities.
Examples: Media release, Investor Alert List on scams and illegal websites, communication via social media.
Alerts
Warning the public on scams and unlicensed activities.
Examples: Media release, Investor Alert List on scams and illegal websites, communication via social media.
Enforcement Actions
Taskforce on Unlicensed Activities to take action for breaches of the securities laws.
Examples: Criminal, civil and administrative actions, police reports, referrals to other enforcement agencies.
Investor Education and Industry Communication
Monthly communication with market intermediaries on unlicensed activities and scams via the SC’s EASy platform for them to alert their clients.
Dedicated email channel for the industry to escalate scam-related matters with the SC.
Public campaigns and targeted efforts to educate investors.
Examples: Flagship investor education outreach events like InvestSmart® Fest 2022 and Bersama InvestSmart® @ Sarawak 2022, social media postings, monthly webinars and initiatives focusing on targeted group like Urban B40 and rural population.
What actions were taken by the SC?
6
Enforcement actions
6
Notices of Cease and Desist
304
Investor Alert List inclusions
88
Police reports
181
Referrals to other agencies / foreign regulators
185
Websites blocked
38
Facebook accounts geo-blocked
114
Telegram accounts blocked
9
Instagram accounts blocked
142
Social media
interventions

Focused Efforts on Scams

In order to combat the growth of investment scams and clone firms, the SC set up an internal task force to accelerate investigations and initiation of enforcement actions against potential fraudulent perpetrators.

The SC’s investigation shows that the modus operandi typically used by fraudulent perpetrators involved:

Using names, logos, credentials, website of a legitimate capital market intermediary to promote false investment schemes;
Targeting PLCs that possess high investor interest such as the medical, glove, and property sectors during the COVID-19 pandemic;
Putting out advertisements on social media channels such as Telegram, Facebook and WhatsApp to lure investors with investment packages guaranteeing high returns with low risk and seemingly managed by ‘licensed intermediaries’;
Using large number of ‘agents’ to lure potential victims and soliciting investments through social media chats once the victims clicked on the link provided; and
Requesting victims to deposit monies for the ‘investment schemes’ into bank accounts held by mule account holders to layer and launder the illegal proceeds received.

The victims were often instructed to provide personal information such as their names, NRIC numbers and bank details, after which they would be directed to transfer funds to the personal bank accounts of the fraudulent perpetrators who claim to represent a legitimate licensed entity. Following suit, the perpetrators will induce the victim to part with more money under the guise of pending payments that may include income tax, administrative fees, bank charges, withdrawal fees or exchange rates.

These perpetrators often make use of a mule account where an individual or a company allows their bank account to be used and controlled by other people by handing over an automatic teller machine (ATM) card, PIN number and/or by providing an online banking password to criminals to transfer/receive money from fraudulent activities.

Money mules are people recruited by criminals, often unwittingly, to use their accounts to transfer funds and launder their illicit profits. In most cases, money mules are recruited as part of wider scams including clone firm scams, to complicate the money trail. Money mules serve to add more layers by moving the money further and further away from the original crime/offence. In return for the use of the bank accounts, the mules will receive a certain amount of reward.

Enforcement Actions Taken on Scams

The SC employed a three-pronged approach including reprimanding, imposing penalty as well as issuing stern warning letters to the individuals involved respectively.

Action was taken against nine mule account holders related to clone firm scams for breaches of section 354(1)(a) of the CMSA read together with section 4(1)(b) of the AMLATFPUAA. Each mule account holder received a reprimand and penalty of RM225,000.

During the SC’s investigations, at least 32 mule account holders have been identified to be involved in facilitating the operators of these clone firm scams. As a result, the SC served Show Cause Notices (SCN) to 15 individuals that are believed to have received illegal proceeds from the operations of clone firm scams.

These scam operators have generated a large amount of illegal proceeds. In one of the scams, approximately RM3.6 million had flowed through one mule bank account within a period of six months. Based on the 154 bank statements reviewed, the SC also found that in total, at least RM24.7 million may have flowed to several ‘masterminds’ of these scams.

Members of the public are reminded that they are responsible for keeping their accounts safe, to always be vigilant and to not fall victim to mule account scams.

Read more on media release ‘SC’s Discloses Findings on Clone Firm Scams’.
Read more on investment scams and unlicensed activities in the The Reporter, 2022 edition.

Enforcement Action on Unlicensed Activities

As an enforcement agency, the SC has a wide range of enforcement tools at its disposal and employs them effectively taking into account the seriousness of the offence, impact to investors, possibility of recovery of monies, time and cost involved.

A total of four criminal charges were initiated by the SC relating to unlicensed investment advice activity. Additionally, three convictions were also secured by the SC in relation to unlicensed fund management and dealing in derivatives activities.

Read more on the four criminal charges initiated by the SC:

Investor Education and Awareness Campaigns

The longer-term approach is to educate investors and reach out to various segments of investors – from urban to the rural, young and old alike, through large campaigns and targeted efforts.

Investor awareness campaigns
After a two-year hiatus due to the pandemic, the SC held its flagship investor outreach, InvestSmart® Fest 2022 and Bersama InvestSmart® @ Sarawak, in Kuala Lumpur and Kuching, respectively. Themed ‘Silap Labur Duit Lebur’, both events aimed to promote investment literacy and awareness on unlicensed activities and scams to members of the public.
Targeted outreach programmes
The SC curated several targeted programmes for certain segments of the population. One such programme is the roll-out of the Agen Bijak Labur Desa (ABJAD) programme to create financially literate rural communities. A two-pronged approach in reaching out to the rural population under the ABJAD programme was adopted.

Students from 14 rural secondary schools nationwide were trained as ‘Agents of Change’ to gain knowledge on financial and digital literacy modules through computer assisted e-learning platform. Upon completion, these students will guide an identified key family member to also complete the e-learning modules and subsequently impart the knowledge to other family members. Under this approach, teachers from the identified schools will also go through the same online modules. A total of 12,500 participants comprising students, family members and teachers are expected to go through this programme.
InvestSmart®’s direct on the ground engagements with rural communities.

Further details on the SC’s investor empowerment initiatives through InvestSmart® are highlighted in Part 6 – Market Statistics.

SIDREC’s Role in Investor Protection

Meanwhile, the Securities Industry Dispute Resolution Center (SIDREC), an independent and impartial dispute resolution body for the capital market, continued to facilitate the resolution of monetary disputes between retail investors and market intermediaries in an accessible, efficient and effective manner. SIDREC enhances investor protection by affording investors access to settlement of disputes through case management, mediation and adjudication, without the need to resort to expensive litigation.

In 2022, SIDREC received 239 claims and enquiries, out of which 72 were eligible disputes (2021: 275 claims and enquiries, of which 47 were eligible disputes). 80.6% (25 out of 31) of the eligible disputes resolved in 2022 were resolved through case management and mediation without having to proceed to adjudication.

For 2022, SIDREC resumed conducting its in-person mediation sessions and adjudication hearings. However, fully virtual or hybrid sessions and hearings were still conducted as and when required.

SPECIAL FEATURE 1

TOWARDS GREATER INVESTOR PROTECTION: UNDERSTANDING INVESTORS’ VULNERABILITIES

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.