Kuala Lumpur, 23 May 2011
Fund management companies’ compliance guidelines revised to further safeguard investors’ interests
The Securities Commission Malaysia (SC) today released a revised version of the Guidelines on Compliance Function for Fund Management Companies (Guidelines) to enhance client asset protection and further safeguard the interests of investors in a number of areas.
Transparency and professionalism is raised through requirements for fund management companies to highlight unique features and characteristics of investment products, such as derivatives and private equity to their clients. In addition, fund management companies must make their clients aware of the risks inherent in the investments, including liquidity and attribution of ownership. They will have to provide quarterly updates on the performance of each client’s portfolio against appropriate benchmarks and any subsequent changes in risk as well as the potential impact of these risks on the client’s investment. Fund management companies are also now expressly prohibited from recommending, or investing clients’ funds in, products which they themselves do not fully understand in terms of structure, pricing mechanism and nature of underlying assets (if any).
Accountability is preserved with the stipulation that where a fund management company delegates its fund management function, all responsibilities and obligations to the client must remain at all times with the original fund management company appointed by the client. A number of areas where delegation is prohibited are also defined, including performing risk profiling of clients, recommending investment policies and reporting of the client’s portfolios under management.
Client asset protection is enhanced via a clarification that only foreign financial institutions which are appropriately authorised to provide custodial services in their home jurisdictions may be appointed as custodians.
The revised Guidelines also introduce 11 core principles which fund management companies and their representatives are required to uphold in the conduct of their business. Ranging from integrity, skill, conflict of interest, compliance culture and client asset protection, the core principles are aimed at promoting a culture of compliance, professionalism, ethical standards and responsible conduct amongst fund management companies, their representatives and employees.
SECURITIES COMMISSION MALAYSIA