Kuala Lumpur, 9 November 2009

Malaysia and Hong Kong in landmark pact to develop Islamic capital market 

The Securities Commission Malaysia (SC) and the Securities and Futures Commission of Hong Kong (SFC) today achieved a major milestone in their regulatory cooperation by signing a mutual recognition agreement (MRA) to further develop the Islamic Capital Market (ICM)  in particular, Islamic Collective Investment Schemes (CIS).  

SC Chairman Tan Sri Zarinah Anwar and SFC Chairman Dr Eddy Fong signed the MRA in Kuala Lumpur, witnessed by the Minister of Finance II YB Dato’ Seri Ahmad Husni Hanadzlah and Miss Au King Chi, Permanent Secretary for Financial Services & the Treasury, the government of the Hong Kong Special Administrative Region.

The MRA will help pave the way for deeper and broader Islamic investment markets in both jurisdictions and foster close regulatory cooperation. Under the agreement, Malaysian capital market intermediaries will be allowed to distribute their Islamic products in Hong Kong’s financial hub with minimal regulatory intervention. Similarly, Islamic funds that are authorised and primarily regulated by the SFC and managed by SFC-licensed managers can now be marketed in Malaysia.

Tan Sri Zarinah said the MRA marked a new chapter in the mutual cooperation between SC and SFC and cleared the way for the development of a common platform for cross-border offerings of Islamic CIS.

“The linkages with leading financial centres such as Hong Kong will raise the international profile of the Islamic capital market and will benefit our respective intermediaries and investors,” she said. “This initiative will also support the Malaysian government’s agenda towards promoting Malaysia as a major hub for Islamic finance, including Islamic fund intermediation.”

“I am delighted at the signing of the Declaration. This not only marks a milestone in the regulatory co-operation with our Malaysian counterpart, but also contributes to the government’s objective to promote Islamic finance in Hong Kong. Investors in both markets will enjoy a wider choice of investments with the cross-border offering of Islamic CIS,” Dr Fong, the SFC Chairman, said at the signing ceremony.

Besides facilitating the cross-border offerings of Islamic funds, SC and SFC will also collaborate  in capacity building as well as information sharing in the development of legal and regulatory framework in relation to Islamic CIS and mutual exchange of regulatory experience relating to Shariah principles. 

“The co-operation on capacity building and information sharing is a significant step forward for Malaysia’s ICM as it signifies the recognition and acceptance of Malaysia’s Shariah pronouncements/rulings in relation to the ICM products,” said Tan Sri Zarinah.

This initiative  is another step towards establishing Malaysia as a centre of Islamic product intermediation, and enhance the attractiveness of both Malaysia and Hong Kong as a market place for global Islamic CIS products, enabling the two jurisdictions to tap the potentially lucrative investments from the Middle East and Asia where there is a large Muslim population.

The cross-border offerings of Islamic CIS will be  supported by cooperation in supervision and enforcement. Both regulators will work closely to assist enforcement of their respective laws and regulations and ensure adequate protection for investors. Capital market intermediaries intending to offer their Islamic funds beyond their respective home jurisdiction are also expected to comply with relevant guidelines on disclosure in the offering document, advertising and marketing to ensure adherence to certain minimum standards.

The MRA with the SFC is the second MRA signed by the SC with a foreign regulator. The first MRA, signed between the SC and Dubai Financial Services Authority in March 2007, allows the offering of Islamic funds constituted and domiciled in Dubai International Financial Centre to Malaysian investors and vice-versa. 

The Guidelines for the Offering, Marketing and Distribution of Foreign Funds, first issued in March 2008 has been amended to reflect the requirements that must be complied by SFC-licensed managers intending to offer their funds in Malaysia. The revised guidelines are available here.