Despite the improvement in global financial markets following lower energy prices and a slower pace of monetary tightening, the capital market remained sensitive to potential deterioration in economic fundamentals such as persistently elevated core inflation and lingering geopolitical tension. Against this backdrop, the SC remained vigilant of potential downside risks that may pose a threat to the systemic stability of the Malaysian capital market.
In 2023, the SC further enhanced its enterprise-wide risk governance framework to facilitate a more streamlined and structured approach. Under this framework, the Systemic Risk Oversight Committee (SROC) is supported by the Market Risk Committee (MRC) and Technology and Cybersecurity Risk Committee (TCRC) (Figure 1). SROC conducted regular engagements to deliberate areas of emerging concerns to pre-empt a build-up of systemic risk in the capital market.
The SC engaged other regulators such as Bank Negara Malaysia (BNM) and the Labuan Financial Services Authority (Labuan FSA) to identify systemic risk concerns which may impact the Malaysian capital market. Issues deliberated include the global banking turmoil in March 2023, persistent inflation and ESG risks. Such engagements enabled timelier and more co-ordinated inter-agency response, when required. The domestic equity and bond markets, foreign fund flows and trade participation were also monitored for potential stress points.
In 2023, the SC has reviewed its Crisis Management Framework to enhance operational processes and guidance aimed at better crisis response co-ordination within the SC. In view of the significant change in market dynamics post the COVID-19 pandemic, a three-days Capital Market Crisis Preparedness and Management Programme was jointly organised with the Toronto Centre to reinforce the SC’s organisation-wide crisis preparedness. The programme aimed to ensure the adequacy and relevance of organisational crisis preparedness while identifying areas for enhancement in relation to market crisis response capabilities moving forward.
The SC also conducted several thematic assessments on topics such as the Silicon Valley Bank (SVB) collapse, Additional-Tier 1 (AT1) bonds, funds stress test and investor fund flows. In the first quarter of 2024, the SC will publish its second Capital Market Stability Review which contains an overall assessment of risks in the Malaysian capital market and a discussion on relevant drivers of systemic risk.1
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.
