Objective of oversight
Financial market infrastructures (FMIs) play an important role in ensuring orderly and efficient functioning of the capital market, and it is critical that these infrastructures operate on a continuous basis without any disruption to market activities. The Securities Commission Malaysia (SC) oversees four main types of FMIs, which include central counterparty (CCP), securities settlement system (SSS), central securities depository (CSD) and trade repository (TR).
The SC’s oversight of FMIs is also in line with its mandate to ensure effective regulation and mitigation of systemic risk in the capital market. The scope of responsibilities, powers and authorities of SC for the oversight of FMIs are set out in the Securities Commission Malaysia Act 1993 (SCA), Capital Markets and Services Act 2007 (CMSA) and Securities Industry (Central Depositories) Act 1991 (SICDA).
Regulatory framework for FMIs
The establishment of FMIs in the capital market requires the prior approval of SC. In Malaysia, Bursa Malaysia Securities Clearing Sdn Bhd and Bursa Malaysia Derivatives Clearing Bhd, which carry out central clearing for the securities and derivatives markets, respectively, are approved as clearing house pursuant to section 38 of the CMSA, while Bursa Malaysia Depository Sdn Bhd is approved as a provider of securities settlement and central securities depository services pursuant to section 5 of SICDA.
The Guidelines on Financial Market Infrastructures (Guidelines) issued pursuant to section 377 of the CMSA, set out the key considerations for the approval of FMIs. The Guidelines also specify the continuous obligations of FMIs to comply with the Committee on Payments and Market Infrastructures (CPMI) and the International Organisation of Securities Commissions (IOSCO) Principles for Financial Market Infrastructures (PFMI) to ensure that FMIs in the capital market continue to operate in a safe and efficient manner.
Approved FMIs are also required to comply with the Guidelines on Management of Cyber Risk to ensure adequate resilience against cyber risk and the ability to provide critical capital market activities and services on a continuous basis.
Supervisory approach for FMIs
The SC supervises FMIs in the capital market on an ongoing basis. These supervisory activities include macro review of the capital market and the broader financial markets conditions, oversight of FMIs’ disclosures and regulatory reporting as well as on-site supervision of FMIs, where necessary to assess FMIs observance of the PFMI. As part of its supervisory process, SC engages the board and management on the outcomes of regulatory assessment to ensure timely address of supervisory issues.
Cooperation with Bank Negara Malaysia
The SC has entered into a Memorandum of Understanding (MoU) with Bank Negara Malaysia (BNM) on the oversight of payment and settlement systems, which provides a co-operation framework for exchange of information, co-ordination and consultation on policy development and initiatives. This is to ensure the respective regulatory mandates are achieved.