Keynote Address
By
Dato’ Ahmad Fairuz Zainol Abidin
Deputy Chief Executive, Securities Commission Malaysia
at
The Edge-Thomson Reuters Lipper Fund Awards 2017

27 February 2017

Mr Ho Kay Tat,
Publisher and Group CEO of The Edge Media Group;
Raymond Lee
Director and Senior Site Leader, Thomson Reuters;
Distinguished guests; ladies and gentlemen:
Assalamualaikum warahmatullahi wabarakatuh and a very good morning.

1. It has been almost two decades since The Edge-Thomson Reuters Lipper Fund Awards have been presented in Malaysia and I am very pleased to see it continuing to grow from strength to strength. By recognising exemplary performance across different fund houses, the Awards not only encourage fund managers to excel relative to their peers but also their own performance track record.
2. Those of you who were here last year would remember my predecessor, the esteemed Dato Dr Nik Ramlah Mahmood, referring to these Awards in her speech as “the Oscars of the Malaysian fund management industry” – and this remains an assessment with which I wholeheartedly concur.
3. This is of course my first appearance at this event, and I would like to take this opportunity to thank The Edge and Thomson Reuters Lipper for their kind invitation for me to deliver the keynote address.
4. I am extremely delighted to make your acquaintance here this morning, but rest assured that I am also very well aware of the clock’s relentless march towards lunch hour so I will try and keep my remarks fairly concise… because nobody wants to be that one person standing between an audience and their food.
Ladies and gentlemen,
Sustained industry growth despite challenging market conditions
5. As an institution that is statutorily entrusted to regulate and develop the Malaysian capital market, the long-term growth of the fund management industry is a goal that the Securities Commission has and will continue to pursue. It is very clear that the industry has made tremendous progress since its early days, which speaks volumes about the efforts that everyone here in the audience – as well as your predecessors – have continuously put in to strengthen your respective firms, product offerings and customer relationship practices.
6. We are also very pleased by the industry’s commitment towards working together with the SC to raise the standard of investor awareness and education in Malaysia, not only through your independent initiatives but also your consistent participation in efforts such as InvestSmart. Such outreach efforts are very valuable in ensuring that improvements in the supply of information through enhanced disclosures, are met with an equivalent increase in effective demand for information by engaged and knowledgeable investors.
7. The value we place on investor empowerment is closely linked to the heightened emphasis that we have placed on the importance of public trust and investor confidence. Over the last few years, the SC has consistently reiterated this point at both the domestic and international level, through our Chairman’s involvement in global financial policymaking initiatives.
8. From the SC’s perspective, preserving public trust and investor confidence is so critical because it is these two very ingredients which form the basis for any capital market’s ability to weather short-term turbulence without compromising its long-term growth trajectory – and these dynamics can be seen playing out in the Malaysian fund management industry.
9. It is fairly evident, for example, that financial markets across the globe have had a relatively challenging recent few years, primarily due to an overhang of fragilities in the world’s major economies, which is further exacerbated by uncertainties over the impact of not only policies which were directly prompted by these fragilities, but also an upswell of political risk in several advanced economies – which, if we were being honest, caught many forecasters off-guard.
10. While these challenges are global, as an open economy with an internationally-networked capital market Malaysia was not insulated from these gyrations, and it would be unrealistic to expect otherwise. What is an important takeaway, however, is the fact that the AUM of fund management industry as a whole continued to chart yet another year of positive growth despite such challenging market conditions.
11. The unit trust industry, in particular, is a useful barometer of retail investor sentiment. It is therefore very encouraging to see that the unit trust segment has also continued to expand in 2016, with a net positive increase not only in the number of funds launched, but also in terms of the number of units in circulation and new account openings.
Ladies and gentlemen,
Inculcating discipline through on-going regulatory vigilance
12. The industry’s ability to persevere in the face of headwinds illustrates a number of important points, including the depth of goodwill and confidence presently accorded to it by investors who continue to view unit trust funds favourably, particularly as a source of stable returns.
13. However, it is crucial that we – and by “we” I mean both the SC and the industry – do not take this goodwill for granted, for trust is fiendishly difficult to build yet very easy to dismantle. This is why, for example, the investment management industry has come under the regulatory spotlight in a number of jurisdictions. Regulators in Australia, Canada and the UK are among those that have looked into the issue of sales charges or commissions from the perspective of transparency as well as alignment of interests between investors and distributors.
14. Having assessed the issue within the context of our capital market, while the SC – for now – is taking the view that fees should continue to be determined by the market. However, we also call upon the industry to ensure that fees are reasonable and disclosed in an honest and transparent manner. At the same time we will continue to monitor developments in this regard and respond appropriately should the need arise.
15. Other facets of sales practices continue to be closely tracked by SC, particularly through our on-going supervisory efforts. Over the last two years, we have conducted thematic reviews on sales practices, which, among others, focused on the effectiveness of controls in place at intermediaries as well as a mystery shopping exercise to evaluate the conduct and quality of service rendered by unit trust consultants.
16. At this juncture, I must reiterate that the importance of good business conduct from SC’s perspective cannot be understated. This is an emphasis echoed by many of our counterpart regulators across the globe.
Ladies and gentlemen,
Regulatory efforts to promote industry development
17. The discipline that we aim to inculcate in intermediaries through on-going supervisory vigilance helps to build an environment which is conducive for the other half of the SC’s mandate, namely our developmental efforts. At any one time, we have a number of workstreams looking at various ways through which the regulatory framework can be further enhanced to make it more facilitative to businesses in terms of promoting cost efficiencies and enabling customer-focused innovation, while not compromising market integrity and the degree of protection accorded to investors.
18. These efforts, for example, have yielded measures such as the expedited approval process for non-complex retail unit trust funds, with the aim of reducing time to market, and removal of the requirement for prospectuses to be renewed annually, which were announced in July 2016. As the current Chair of the ASEAN Capital Markets Forum, SC is also working closely with our ACMF counterparts to further enhance the ASEAN Framework for CIS, which is intended to facilitate inbound and outbound intra-regional fund offerings.
19. Moving forward, developmental initiatives focusing on accelerating the growth of the fund management industry will be driven by, among others, the execution of the Islamic Fund and Wealth Management Blueprint which was launched on 12 January this year, which aims to consolidate Malaysia’s position as a global hub for Islamic funds while also developing it into an international provider of Islamic wealth management services.
20. Another key driver of the SC’s developmental strategy which is of particular relevance to this industry is our digitalisation agenda, which will cut across various segments of the capital market, including fund management. One of the earliest initiatives to be rolled out in 2017 is in relation to a digital investment services framework, with further details to be disclosed in due course. The flipside of this digital-driven developmental agenda, of course, is our concurrent focus on identifying and mitigating cybersecurity risks, which has been elucidated in great detail in SC’s Guidelines on Management of Cyber Risks that was issued in October 2016.
Ladies and gentlemen,
Conclusion
21. I hope that my remarks were sufficient in giving you a flavour of what is in the pipeline for the fund management industry in the coming year, and we continue to value your thoughts and feedback on issues relevant to the industry as well as the capital market at large. Once again, I would like to congratulate all of the Award recipients this year, and I hope to see the industry continue to deliver on its tremendous growth potential. Thank you.