Opening Keynote
Y Bhg Tan Sri Zarinah Anwar
Chairman, Securities Commission Malaysia
2011 ICGN Mid Year Conference
1 March 2011
“Asian Corporate Governance – The Future Steps”

Yang Berbahagia Tan Sri Azlan Zainol, Chief Executive Officer, Employees Provident Fund, Malaysia

Yang Berbahagia Tan Sri Abdul Halim Ali, Chairman, Minority Shareholder Watchdog Group, Malaysia

Ms Christianna Wood, Chairman, ICGN Board of Governors

Distinguished guests, ladies and gentlemen

Good morning


It is well-known that the International Corporate Governance Network (ICGN) with its members representing funds under management of around USD12 trillion plays a major role in raising the standards of corporate governance the world over, and that the breadth and expertise of ICGN members from investment, business, the professions and policymaking extends across global markets, so I am delighted that Malaysia, for the first time, is hosting an ICGN conference.


Over the past decade, Asia has become a major player in the global economy. Today, Asia is leading the world in terms of economic recovery from the global financial crisis. During the past few years, Asia has been the beneficiary of strong capital inflows primarily from Europe, the United States and the Middle East; into both financial and real assets. The contributing factors have generally been strong economic fundamentals, attractiveness of the equity markets, growing depth of the debt markets, and strengthening currencies.

Ladies & gentlemen


The Asian corporate governance agenda has come a long way and has advanced significantly since the Asian Financial Crisis over a decade ago. Given the major corporate governance failures which had exacerbated the crisis, corporate governance reforms became an important driver of change in the Asian economies. For the first time international organisations like the IMF, World Bank, and ADB began to include corporate governance in their crisis response programmes. The Asian Financial crisis also saw the birth of the OECD Asian Roundtable on Corporate Governance which is now the most influential platform for corporate governance reform in Asia.


A recent survey to assess progress in implementing the recommendation of the 2003 Asian White Paper on CG, found that Asian Roundtable economies have implemented numerous updates to laws, regulations, guidelines and listing requirements over the years. CG Codes have been issued in all Roundtable economies, whistle blowing protection provisions have been introduced in most jurisdiction and significant measures to strengthen institutional capacity and enforcement, as well as protection for shareholder rights have been put in place.


Asian economies including Malaysia have made determined efforts to continuously improve corporate governance standards and practices. Increasingly domestic reform efforts are now being supported and complemented by regional initiatives.


The establishment of the ASEAN Capital Markets Forum, a forum of securities regulators under the umbrella of the ASEAN Finance Ministers established in 2004 provides ASEAN capital market regulators with a platform to work towards capital market integration and the observance of harmonise standards within the region. Numerous initiatives are being pursued including one which is led by Malaysia, funded by the Asian Development Bank and supported by OECD – to enable a CG ranking to be done on top PLCs from several countries within ASEAN.


For us in Malaysia, the crisis from over a decade ago provided the impetus, the resolve and the sense of urgency for a holistic and concerted approach to corporate governance reform. A comprehensive corporate governance agenda was introduced immediately after the Asian Financial Crisis through the High Level Finance Committee Report on Corporate Governance, which was published in 1999. The report itself signalled a turning point in the way the corporate governance in the Malaysian capital market would be pursued.


This led to amongst others to the introduction of the Malaysian code of corporate governance, the establishment of the MSWG, the introduction of whistle-blowing provisions, the tightening of rules on related-party transactions, the introduction of mandatory accreditation programme for directors of PLCs, the enhancement of disclosure requirements in the Bursa Listing Rules and the widening of the SC’s enforcement powers for civil and administrative action as well as over corporate governance transgressions.

Ladies & gentlemen


If the growth and development of our capital market is used as a barometer to measure the success of these reform efforts, clearly we have made very significant progress. Over the last decade, Malaysia’s capital market has made tremendous strides with the size of the capital market expanding from RM717 billion to RM2 trillion, a compounded growth rate of 11% per annum. Today, Malaysia’s equity market capitalization stands at 165% of GDP while the bond market stands at 97% of GDP. It is the 3rd largest bond market in Asia. We have the largest domestic unit trust industry in ASEAN and have over the years developed one of the largest and certainly, the most comprehensive Islamic capital market in the world.


The demographics, diversity and sophistication of our market participants have also changed dramatically. Our minority shareholders for instance are now more assertive in seeking accountability from the board and senior management of companies. Since its establishment in 2000 MSWG has worked very hard to establish credibility with retail investors, the authorities, listed company management, and the media. Today minority shareholders are better organized and have a stronger voice.

Ladies & gentlemen


The improvements we have made to the regulatory framework, and the many measures that had been implemented since the Asian financial crisis have to a great extent contributed to the health and sustained growth of the capital market in Malaysia. As a result, Malaysia was able to demonstrate extreme resilience in the midst of the Global Financial Crisis. The SC continues to take steps to ensure that our regulatory framework conforms to international standards.


The international recognition received for our efforts is heartening. In 2010 the FTSE Group upgraded the Malaysian stock market to advanced emerging markets status within its Global Equity Index Series, while the United States’ Securities and Exchange Commission and Commodities Futures Trading Commission recognised Malaysia’s derivatives market regulatory framework as meeting international standards and offering comparable protection to investors relative to the US when our exchange was approved as a designated offshore market.


Last year, Malaysia was officially recognized as an investment destination under China’s Qualified Domestic Institutional Investors Investment Scheme. This makes Malaysia the first emerging market and only one of 11 countries so recognized by China. In addition, Malaysia retained our 4th position for investor protection for the fifth consecutive year in the World Bank’s Doing Business 2011,out of 183 countries assessed.


A strong regulatory framework also requires providing the necessary assurance ofthe audit process and the quality and reliability of audited financial statements. Towards this end, in April 2010, the SC established the Audit Oversight Board (AOB) to provide independent audit oversight over public interest entities and to ensure our regulatory framework for auditors is on par with international standards.


The AOB has begun its work in earnest and in the first nine months of its existence, it has examined the top six audit firms in Malaysia. The AOB has since been admitted into the International Forum of Independent Audit Regulators.


Early this year, we also established the Securities Industry Dispute Resolution Centre, or SIDREC. SIDREC serves as an alternative dispute resolution body for the capital market, aimed at obtaining redress for retail investors with small claims not exceeding RM100, 000, who may not have the financial resources to pursue their claims in court.

Ladies & gentlemen


In a more connected world and capital markets, it is expected that markets adjust their regulatory framework to be consistent with global standards. Furthermore, regulation of capital markets is a complex exercise that requires constant vigilance as new vulnerabilities always emerging and gaps are quickly exploited. The financial crisis brought it home to us that markets are global and regulators need to be globally focused.


Many regulatory initiatives have been introduced including those of the International Organization of Securities Commissions (IOSCO). IOSCO is the recognised standard setter for the world’s securities markets, and I have the privilege of being the vice-chairman of its Emerging Markets Committee.


In June last year, the IOSCO Objectives and Principles of Securities Regulation (IOSCO Principles), which are recognized as the international regulatory benchmark for all securities markets, were revised to incorporate eight new principles, based on lessons learned from the financial crisis and subsequent changes in the regulatory environment. These new principles cover areas such as hedge funds, credit rating agencies and auditor independence and oversight, in addition to broader areas of systemic risks; conflicts of interest and misalignment of incentives.


The Emerging Markets Committee of IOSCO has also led various streams of work to identify specific issues relating to emerging market jurisdictions. One project which was jointly led by Chile and Malaysia highlighted the need to strengthen regulatory and investor protection frameworks, as well as effective prevention and management of systemic risks. This initiative revealed that it was increasingly apparent that emerging markets must actively cooperate with developed jurisdictions in international financial coordination and have a greater voice in the decision-making process in both regulatory issues as well as in identifying relevant responses to a crisis. This report of the Emerging Markets Committee has since been submitted to the G20 for its deliberations.

Ladies & gentlemen


The financial crisis reminds us of the central role of regulation in maintaining public confidence in capital markets. In this regard, regulation serves to maintain minimum standards for participants and products, ensure timely and relevant disclosures and maintain the integrity of transactions. To the best extent possible, regulation seeks to provide reasonable safety from fraudulent and predatory practices and to allow investors to assess and manage market and business risks.


It has been repeatedly demonstrated throughout financial crises, whether in Malaysia, Asia or elsewhere in the world, that reckless risk taking and short-term interests, if left unchecked, are likely to lead market participants to engage in callous and reckless conduct that poses risks to the well-being of investors and the integrity of the market.


In this fragile and challenging environment, the SC remains absolutely committed to protecting investors by improving the quality of information providing to investors, by enforcing vigorously the law, maintaining vigilance, managing proactively risks against regulatory objectives and educating investors to protect their own interests.


We continue to focus our regulatory resources on matters that are important to the well-functioning of the market and enforce firmly and fairly against those who harm investors or damage the integrity of the market, ensuring always that we are consistent in our actions while having regard to the specific circumstances of each case.


However, strengthening of laws, effective gatekeeping and swift enforcement are only one aspect of enhancing corporate governance. In the firm pursuit of these efforts we are mindful of the continuing debate about the proper role of laws and regulation in ensuring corporate governance and the cost to the market of over-dependence on regulatory discipline. As a regulator the fundamental dilemma of corporate governance is getting the balance right.


As events in capital markets worldwide indicate, there is a need for constant vigilance to maintain the confidence and integrity of the capital market. This is not a task that is the sole preserve of the regulators but a shared responsibility between the reputational intermediaries that understand their role as gatekeepers, of corporations who understand that shareholder value is enhanced by meeting their responsibilities for sustained development of society and creation of value for all shareholders, by boards who understand that their resolve is strengthened by placing the interest of the company above theirs, and above all by investors who understand that they protect their interests best by being alert, active and responsible.


The SC believes strongly that a key element of successful regulation is to work in partnership with all stakeholders. Regulation is not intended to be a substitute for the need for capital market stakeholders to govern themselves in a responsible manner. Indifference lies at the root of every financial crisis. Given the critical role that markets play in a modern economy, it is important that all stakeholders share responsibility for the consequences of their actions and commit to intermediation practices that are fair and efficient as this will provide the greatest assurance of protection for investors, and their own sustainability.

Ladies & gentlemen


Since the publication of the report by Finance Committee on Corporate Governance in 1999, and the 10-year Capital Market Masterplan in 2001, Malaysia’s capital market has experienced tremendous growth. As a regulator, we are acutely aware that we cannot rest on our laurels. Work on a new five year corporate governance blueprint, and a second ten-year Capital Market Masterplan (CMP2) that are intended to articulate Malaysia’s strategies and agenda for the development and regulation capital market over the next decade are in the final stages of development. Both these documents are expected to be launched in the first half of the year.


Our underlying philosophy behind our efforts is to promote growth with governance and to ensure governance for growth. Over the next decade, the expansion of the capital market needs to be underpinned by an enabling regulatory environment that facilitates intermediaries to meet the varied and sophisticated needs of businesses and investors, while providing strong oversight to assure investors that investment activities are conducted in their best interests..


Through the Corporate Governance Blueprint we will look at regulation as a means to empower market participants to take on the accountability challenge themselves. We are also focusing on enhancing the standards of board governance, reviewing ways to further improve shareholders access, considering mandating poll voting in certain corporate transactions and committed to addressing the issue of diversity on boards of public listed companies.

Ladies & Gentlemen


Bodies like the ICGN play an important role in raising awareness of good practices in corporate governance, promoting reform agendas and disseminating the best ideas and practices to ensure the corporate world does not repeat mistakes of the recent past. Today’s conference is indeed a valuable platform to provide more avenues for sharing, learning, and networking and I am delighted that so many of you are able to be present here. I would like to thank the ICGN for this opportunity, and congratulate EPF and MSWG for making this conference possible.


Finally, I would like to also take this opportunity to wish all of you a very successful conference. I thank you for inviting me to share my thoughts with you and wish you all the very best in your deliberations.

Thank you