Monitoring and Management of Systemic Risk

Headwinds from global economic uncertainty and trade tensions continued to shape both international and domestic financial and capital markets throughout 2025. Although greater clarity on US tariff policies lifted investor sentiment, the Malaysian capital market remained vulnerable to uncertainties over future trade developments, their eventual impact, and the path of US monetary policy, all of which could spill over into the domestic capital market. Against this backdrop, the SC maintained heightened vigilance to proactively identify and manage potential vulnerabilities to the systemic stability of the domestic 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).

The SC’s established systemic risk governance structure (Figure 1) ensures a streamlined and structured escalation of concerns arising from systemic risk surveillance and assessment. The Risk Management Committee (RMC) convened periodic meetings to deliberate on potential risks arising across different segments of the capital market, with the objective of addressing issues before it could escalate into systemic concerns.

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

Given the interconnectedness within the broad financial system, the SC also engaged closely with other regulatory authorities, such as BNM and the Labuan Financial Services Authority (Labuan FSA), to identify systemic risk areas that could potentially affect the domestic capital market.

Key issues discussed during these engagements include global market volatility, currency movements, and the latest developments related to the impact of US tariff policies. These discussions support more efficient and well-coordinated inter-agency responses when required, thereby strengthening the resilience of the overall financial system.

In 2025, the SC further strengthened its crisis management capability and preparedness by conducting several programmes to reinforce organisation-wide readiness. These included Capital Market Crisis Simulation Exercise, jointly organised with the Toronto Centre, intended for the SC to practise crisis handling in a safe environment, evaluate the effectiveness and adequacy of existing protocols and processes, while fostering a culture of proactive crisis management and continuous learning.

The SC also undertook several deep-dive thematic studies on relevant topics, including US tariffs, China’s economic recovery, and de-dollarisation and their implications on the Malaysian capital market. These efforts were complemented by engagements with industry stakeholders to obtain insights of current or emerging market risks.

Committed to managing systemic risk proactively, the SC published its fourth Capital Market Stability Review in the first quarter of 2026. This publication discusses the risk landscape of the Malaysian capital market, highlighting key systemic risk drivers and providing insights to stakeholders in navigating 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.