As part of its business plan for 2006 the Securities Commission (SC) has undertaken a review of policies relating to the unit trust industry. Generally, the Malaysian unit trust industry has sustained double-digit growth over the past decade and has the potential to grow even faster given the high domestic savings, favourable demographics and expanding labour force. The unit trust industry is well positioned to play a major role in the growth of the Malaysian capital market.
The SC has identified a set of initiatives aimed at providing greater transparency to investors, reducing costs, expanding product choice, improving access, enhancing standards of investor protection and creating a more competitive environment.
These initiatives are consistent with the commitment and strategies outlined in the Ninth Malaysia Plan and Capital Market Masterplan (CMP) to accelerate the growth and development of the investment management industry and to enhance its role in mobilising savings.
Following consultation with the industry, the SC wishes to announce the following initiatives:
It is recognised that currently there are very few funds catering to the needs of investors who wish to save for retirement purposes where the investment objective is towards capital preservation with reasonable returns. In this regard, the SC will work with the industry to introduce a new category of unit trust funds (UTFs) that will fulfil the needs of these investors. These UTFs will have lower investment costs and a more conservative investment strategy. The funds will allow individuals, outside the scope of a formal saving scheme, to invest in a savings vehicle with features consistent with retirement objectives and lower entry costs.
A single pricing regime will be introduced at the beginning of the second quarter 2007 to ensure there is full transparency and disclosure of up-front costs. Unlike the current dual pricing regime where prices are quoted inclusive of charges, under the single pricing arrangements, prices will reflect the net asset value of a unit and all charges will be separately disclosed. The enhanced transparency of prices and charges will allow investors to compare the costs of investing in unit trusts associated with different channels of distribution and should lead to a more competitive cost environment.
A disclosure based regulation (DBR) for product approval will be introduced in 2007. The DBR environment will be applicable for unit trust management companies that demonstrate high standards of conduct, product quality and strong operational controls. The DBR approach will reduce time to market due to less regulatory review on products to be launched. Unit Trust Management Companies can now react faster to changes in the market and launch more unit trust products to meet investor demands thus providing greater investment choices for investors in a timely manner.
Distribution channels will be enhanced to improve the delivery of unit trust products to investors in a convenient and cost-effective manner. This includes enhancing the role of players such as financial planners and broadening the use of technology to improve the cost-effective access of investors to unit trust products.
The SC is exploring appropriate bilateral and multilateral mutual recognition regimes in the region to facilitate the sale of Malaysian unit trust products and the expansion of Malaysian intermediaries into other markets. Similarly, Malaysian investors will benefit from greater choice of products from other markets. These regimes will be premised on the applicability of appropriate regulatory alignment in the respective jurisdictions.
To strengthen investor protection and promote industry self-regulation, the SC will enhance its oversight of the unit trust industry. The Federation of Malaysian Unit Trust Managers (FMUTM) will be formally structured as an industry self regulatory organisation (SRO). The SRO will take on responsibility to ensure high industry standards for sales conduct and business practices and will be subject to oversight by the SC.