Corporate Governance in Malaysia | Corporate Governance Regulatory Framework | Corporate Governance Practice in Malaysia | Corporate governance-related enforcement actions | Resources | Useful links

Corporate Governance Regulatory Framework

Malaysia’s corporate governance regulatory framework is governed by law, code as well as regulatory requirements instituted by the regulator, stock exchange and statutory bodies.


Capital Market Services Act (2007)

The Capital Market Services Act (CMSA), which consolidates part of the Securities Commission Act (SCA), the Securities Industry Act, and the Futures Industry Act, came into force in 2007 with a view to enhance investor protection. The CMSA introduced new provisions which widened the enforcement powers of the SC. Under the CMSA, the SC, through civil actions, can obtain compensation of up to three times the pecuniary gain made or loss avoided for a range of offences including false trading, stock market manipulations and the use of manipulative and deceptive devices. Section 318 empowers the SC to remove from office any chief executive or director or bar such person from being a director if he is unfit to take part in the management of the listed company.

Furthermore, Section 320 of the CMSA imposes a mandatory duty upon auditors and specific employees of listed corporations to report breaches of securities law and the rules of the stock exchange to the authority. Some of these reports have led to enforcement action being taken against the perpetrators who are often the directors and senior management of the company.

Further amendments were made to the CMSA that came into force from April 2010. Under the two new sections of the CMSA, i.e. sections 317A and 320A, the SC is given the power to act against directors and officers of PLCs who cause wrongful loss to their company. SC also can act against any person who misleads the public through falsification of the financial statements of PLCs.


Bursa Malaysia – Listing Requirements

As the front line regulator of the capital market, Bursa Malaysia is guided by regulatory principles to ensure that investor protection remains intact, high standards of business conduct are maintained by listed issuers and an efficient and effective regulation is in place. Bursa Malaysia has issued various sets of rules to stipulate the requirements that need to be met by the regulated entities either upon admission and/or on a continuing basis. It administers and monitors compliance with these rules and takes strict, prompt and objective enforcement action for breaches of these rules. Bursa Malaysia’s Listing Requirements were amended in 2007 to raise the corporate governance standards amongst listed issuers and enhance investor confidence. The key amendments are:

  • Requiring all Audit Committee members to be non-executive directors
  • Mandating the internal audit function in listed issuers and requiring the internal audit function of listed issuers to report directly to the Audit Committee
  • Enhancing disclosure in the annual reports of listed issuers to include information pertaining to the internal audit function
  • Expanding the functions of the Audit Committee to include the review of the adequacy of the competency of the internal audit function
  • Setting out the rights of Audit Committee to convene meetings with external auditors, internal auditors or both, excluding the attendance of other directors and employees of the listed issuer
  • Clarifying that Bursa Securities may “approve” such other requirements relating to the financial-related qualifications or experience that must be fulfilled by at least one audit committee member and the signatory to the statutory declaration in relation to the accounts
  • Requiring listed issuers to submit a copy of written representation or submission of external auditors’ resignation to Bursa Securities as provided under section 172A of the Companies Act 1965


Companies Commission – Companies Act

The Companies Act 1965 sets out the legal basis on which companies are formed, operated and managed. It also sets the rules on how directors and shareholders can exercise their rights as well as how their powers can be accounted for. Since its enactment in 1965, the Companies Act 1965 has been updated through various piece-meal amendment exercises. All in all, there have been a total of 35 amendments to the Companies Act 1965, the most recent being the Companies (Amendment) Act 2007.

The Companies (Amendment) Act 2007 that came into operation on 15 August 2007 had brought significant changes to the corporate governance framework. In relation to the board of directors, the Companies (Amendment) Act 2007 introduces amongst others, the business judgement rule and interested directors are not permitted to participate or vote. Furthermore, amendments were made to the disclosure of interests in contracts and the functions and powers of the board have been inserted.


Malaysian Code on Corporate Governance (2000)

Malaysia was the first country in the region to introduce a Corporate Governance Code in 2000. The Report on Corporate Governance, commissioned by the High Level Finance Committee on Corporate Governance was launched. The Report made wide-ranging recommendations on improving corporate governance, at both regulatory and institutional fronts. The SC, together with other governmental and regulatory agencies, front-line regulators such as Bursa Malaysia and industry associations, worked extremely hard on implementing the reform agenda. The result was a set of new laws, rules and regulations, the introduction of new institutional mechanisms for market activism and regulatory enforcement, as well as capacity building, through training and education.


Revised Corporate Governance (2007)

In 2007, the Malaysian Code on contain key amendments aimed at strengthening the roles and responsibilities of boards of directors and audit committees, and ensuring that they discharge their duties effectively. In particular, the revised Code spells out the eligibility criteria for appointment of directors, the composition of the board of directors and the role of the nominating committee. Independent non-executive directors are expected to provide a more meaningful and independent oversight function.