Monitoring and Management of Systemic Risk

In 2024, global financial markets experienced pockets of volatility due to uncertainty in the Federal Reserve’s monetary policy stance, persistent inflationary pressures, heightened geopolitical tensions and US presidential elections. Despite some stabilisation in energy prices, the capital market remained sensitive to shifts in economic fundamentals, including the impact of global monetary policy expectations and uncertainties surrounding global economic growth. Against this backdrop, the SC proactively identified and managed potential downside risks that could impact the systemic stability of the Malaysian capital market.

This year, the SC has strengthened its enterprise-wide risk governance framework to enable a more streamlined and structured approach in managing systemic risks. To enhance the efficiency and effectiveness of risk oversight and decision-making processes, the SC has consolidated its two risk committees – the Systemic Risk Oversight Committee (SROC) and the Executive Risk Management Committee (ERMC) – into a unified committee now known as the Risk Management Committee (RMC). Regular RMC meetings were held to address potential risk concerns emerging from various segments of the capital market that could contribute to build-up of systemic risk concerns. The RMC is supported by the Market Risk Committee (MRC) and the Technology and Cybersecurity Risk Committee (TCRC) (Figure 1).

Note: RMC represents the consolidation of two committees, previously known as SROC and ERMC.

In carrying out the systemic risk management role, the SC actively monitored various components of the capital market, including the domestic equity and bond markets, foreign fund flows, and trading activities to identify any potential stress points.

In 2024, the SC further deepened its systemic risk management efforts by conducting deep dive thematic studies on key developments, including the impact of global election cycles, China-related risks and vulnerabilities, and geopolitical tensions in the Middle East. The SC also collaborated closely with other regulatory bodies, including Bank Negara Malaysia (BNM) and the Labuan Financial Services Authority (Labuan FSA), to identify and discuss systemic risk concerns that could potentially impact the Malaysian capital market. Key issues discussed during these engagements include the global monetary policy outlook, currency movements, and emerging risk issues such as environmental, social, and governance (ESG) risks and the growing threat of cyberattacks. These discussions facilitated a timelier and co-ordinated inter-agency response when necessary, enhancing the resilience of the overall financial system.

As part of its ongoing commitment to proactive systemic risk management, the SC has published its third Capital Market Stability Review in the first quarter of 2025. This publication will provide a comprehensive assessment of the risk landscape in the Malaysian capital market, highlighting key drivers of systemic risk and offering insights to guide stakeholders in navigating the evolving market conditions.

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.