Engaging the Industry Through Open Dialogue

SC Industry Dialogue 2022

One of the highlights of the year was the annual SC Industry Dialogue (SCID). The SCID series, which began in 2012, serves as a key platform for the SC to undertake robust engagements with market participants and industry associations on developments, potential opportunities, and emerging risks in the capital market.

SCID 2022, held from 19 to 28 July 2022, involved around 70 industry participants across four sessions. The SCID gathered industry leaders from investment banks, stockbroking firms and FMCs to share information, provide insights and discuss potential solutions. Following the SCID sessions, the SC identified four key priorities that needed to be addressed. The four areas were reviving private investments, promoting more effective and inclusive mobilisation of savings, supporting a sustainable transition, and encouraging market innovation and growth. Insights and inputs received, such as issues regarding the shortage of skilled capital market talent and the need for continuous tax incentives, were incorporated accordingly into the SC’s formulation of Budget 2023 proposals and business plan processes.

Budget 2023 Focus Group Discussion

As part of the national 2023 Budget preparations, the SC hosted a focus group session attended by Finance Minister Tengku Datuk Seri Utama Zafrul Tengku Abdul Aziz and leading corporate captains. The session, held on 1 September 2022, was aimed at gathering insights and perspectives among PLCs to help accelerate the growth of Malaysia’s economy and the business sector.

Fifteen top officials from key PLCs attended the meeting. They represented various industries such as plantations, manufacturing, energy, and media. Specifically, the discussion focused around accelerating the postpandemic economic recovery, capitalising on the ESG and climate change opportunities, as well as supporting the recovery and growth of the MSMEs/MTCs.

Shared Accountability in Achieving Desired Goals

Development in the digital offerings of the capital market
As the demand for digital services grew, the capital market continued to witness encouraging growth via digital innovation and the introduction of new business models.
Initial exchange offerings
Following the introduction of the regulatory framework governing digital token offering, the SC has registered two initial exchange offerings (IEOs) operators in March 2022. The registered IEO operators will provide an alternative avenue for eligible companies to raise funds via the issuance of digital tokens in Malaysia. These new operators will be required to carry out the necessary assessments to, among others, verify the issuer’s digital value proposition, review the issuer’s proposal and disclosures in its whitepaper, and undertake a comprehensive due diligence on the issuer and its token offering, prior to hosting the issuer’s digital token on their platform. An issuer may raise funds of up to RM100 million from retail, sophisticated and angel investors, subject to the respective investment limits provided in the SC’s Guidelines on Digital Assets.
Digital asset market
The local digital asset market has moved along with the global market trend in 2022, with an average daily transaction value of RM25.75 million in 2022, compared with RM57.29 million in 2021. Further, more than 128,000 accounts were created in 2022, which added 17% more accounts since end of 2021.

The SC continues to promote responsible innovation within the digital asset space and places a high priority on managing emerging risks and safeguarding the interests of investors. Recognising the strong appetite to operate new digital asset exchanges (DAX) in Malaysia, the SC has opened the application for RMO-DAX registration and enabled a new digital broker business model to operate on the RMO-DAX. This will facilitate the introduction of platforms with different value propositions.

As at 31 December 2022, there were four RMO-DAX operators registered with the SC. Allowing more players to enter the market increases capital market vibrancy by widening the number of regulated exchange platforms for investors to invest in.
Digital investment management
The digital investment management (DIM) segment continued to expand its capital market offerings to address the investment needs of the emerging digital generation of investors. The segment had grown in an upward trend over the years, with a total AUM of more than RM1.39 billion as at end 2022. The number of new accounts created has increased by 42%, since 2021, with the majority of accounts held by men younger than 35 years old. Women-held accounts have invested at least 57% more since December 2021, indicating a positive step towards closing the gender investment gap.
Digital-only brokerage
Digital brokers have enjoyed a dominant presence from retail investors using online brokerage accounts, particularly among millennial investors who comprised the majority (72%) of the clientele base. The increased retail interest in the equity market has peaked (33%) in 2022 during this economic recovery comparatively to 2021, with digital brokers gaining a retail market share of 4%1 with total number of accounts having risen by more than 10% to approximately 276,000 in 2022 [2021: approximately 251,000].
Catalysing greater adoption of emerging tech
In the era of post-pandemic recovery, investments into technology has become crucial to sharpen the competitive edge for businesses. Malaysia’s capital market players will only continue to grow with the help of innovative digital solutions such as the use of artificial intelligence, data analytics, and blockchain technology. To boost productivity and increase digitalisation in the capital market, the SC, in partnership with the Capital Market Development Fund (CMDF), established a RM30 million Digital Innovation Fund (DIGID). Through this fund, the SC will co-fund innovative projects that demonstrate the use of technology to allow new and competitive propositions to be brought into the Malaysian capital market. DIGID aims to encourage smaller capital market players to adopt innovative digital solutions and the development of industry-wide solutions impacting capital raising and investment activities.

Read more on media release ‘SC Unveils Digital-related Initiatives to Bolster Capital Market’.
Facilitating cross-border access to ASEAN Collective Investment Schemes via Digital Repository
As part of the review process for the applications it received, the SC actively maintains an ongoing dialogue with applicants and their advisors. Prior to making the submission, applicants are strongly encouraged to engage with the SC to clear any issues or seek clarifications with regards to the application while preparing the submission documents.

Throughout 2022, the SC engaged with the industry, both directly and through industry associations, to establish closer relationships and promote a feeling of ownership and commitment among all stakeholders. This included the Malaysian Investment Banking Association (MIBA), FIMM (an SRO), the Malaysian Association of Asset Managers (MAAM), the Malaysian REIT Managers Association (MRMA), and the Association of Trust Companies Malaysia (ATCM). These dialogues enable industry stakeholders to offer feedback and address matters that enable the SC to establish facilitative policies, a robust regulatory framework, and encourage continuous capital market growth and development.

Specifically, in the area of corporate proposals, the SC held regular focus group engagement sessions with principal advisers through MIBA as well as other industry stakeholders such as lawyers and valuers, with the objective of providing the SC a platform to share key observations when reviewing the proposals submitted to the SC.

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.