SC Compliance & Risk-based Supervision Initiative Well Received by Industry

Asset Management Industry Briefed on Key Risk Scorecard

Kuala Lumpur, 26 August 2005

The asset management industry has welcomed the Compliance & Risk-based Supervision (CRS) initiative of the Securities Commission (SC). Industry representatives said the CRS initiative was a positive step as it provides the opportunity for enhanced risk management and corporate governance within the industry.

The SC's ongoing efforts under the CRS initiative, introduced in December 2003, include a Compliance and Risk Assessment Questionnaire (CRAq) issued to asset management companies in January 2005. The CRAq aimed to assess the key risk profiles of asset management companies, which was the pilot group for the implementation of the CRS initiative. Industry responses to the CRAq enabled the SC to produce a Key Risk Scorecard and outline suggested action plans for asset management companies.

The CRAq embodies the self-assessment approach inherent in the CRS framework, which enables risk exposures to be made transparent to both the SC and market intermediaries. This in turn leads to more pro-active and pre-emptive risk management on the part of these intermediaries.

At a session on 12 August 2005, the SC briefed industry on the asset management industry Key Risk Scorecard, and provided an open forum for discussion of the risks faced by industry as well as feedback on the CRS framework as a whole.

A corporate governance benchmark was suggested for the asset management industry to provide impetus for proactive improvement on corporate governance standards and practices. The SC will further engage industry on these views and recommendations.

Moving forward, the SC will be conducting risk-based inspections on asset management companies, focusing on high risks areas. Simultaneously, examinations will also be conducted to confirm the veracity of the CRAq submitted by the asset management companies.

In addition, the SC has recommended that asset management companies with risk elements classified as "High Risks" submit to the SC their action plans to mitigate the identified risks by way of introducing new controls or enhancing existing controls. Moreover, asset management companies with "Elevated Risks" will be subject to close and continuous monitoring by the SC.

The individual key risk profiles of the asset management companies will be used as a basis for industry to identify their key risk areas and subsequently implement the necessary mitigating controls. Details of the individual scorecard will be discussed separately with each asset management company.

The CRS initiative will be extended to the unit trust, stockbroking and futures broking industries. The SC will also develop the same for market institutions and other market intermediaries. Further, the SC will be using the Key Risk Scorecard formulated for the asset management industry as a basis to develop an Industry-Wide Key Risk Scorecard.


Notes to the Editor

  1. The SC's work on the CRS framework began in 2003, as part of the move towards fully implementing risk-based supervision of market intermediaries and institutions. The CRS framework emphasises a more rigorous and risk-focused approach to supervision, and coupled with enhanced self-regulation, will promote a higher level of regulatory compliance amongst these intermediaries and institutions.
  2. The CRS framework provides a more structured and comprehensive method of identifying and measuring the qualitative and quantitative risk exposures of its market participants, which involves risk identification, measurement, mitigation and assessment.
  3. A cornerstone of the CRS framework is the self-assessment approach, which requires the asset management companies to provide feedback on their risk-mitigating controls as embedded in the CRAq.
  4. The definitions for 'High' and 'Elevated' Risks are contained in the explanatory document "Compliance and Risk-Based Supervision Framework And Methodology For Asset Management Companies", which was distributed to the asset management companies in January 2005, along with the CRAq.

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