Keynote Speech at the FIMM Annual Conference: FIMMAC 2023 - "Reflect; Relevance; Resilience"

Speaker: Datuk Kamarudin Hashim, Managing Director, SC Malaysia
Location: Grand Summit, Level M1, The Vertical, Bangsar South, Kuala Lumpur
Delivered: 17 October 2023

Key Highlights

In in his keynote address, Datuk Kamarudin Hashim, Managing Director of the SC stated that the asset management industry’s significant contribution to the Malaysian capital market in widening ownership of assets and generating returns on long-term savings has contributed to the industry’s growth. This is reflected in more than 11 times growth in assets under management to RM906.5 billion in 2022 from RM79.8 billion in 2003.

Here are highlights from his speech:

Industry AUM rose to RM964 billion in August 2023, exceeding 2021 and 2022 levels, despite a slight fall in overall AUM in 2022 due to volatility driven by tighter global monetary conditions and geopolitical events.
The ASEAN Capital Market Forum (ACMF) endorsed the Handbook for ASEAN CIS-SRF yesterday (16 October 2023) to facilitate cross-border ASEAN Sustainable and Responsible Funds offerings, a milestone in advancing sustainable investments in the region.
Under Budget 2024, the Government has approved a 60% tax exemption on business income from Islamic Fund Management companies for four years from YA2024 to YA2027.
The Government has also extended the income tax exemptions for fund managers manging SRI funds until 2027.
The SC wants to expand the definition and scope of fund products beyond unit trusts to collective investment schemes under the Capital Markets and Services Act review. Investment managers will have more freedom to create investment vehicles that meet investors' demands.

Full Speech:
En. Mohd Ridzal bin Mohd Sheriff,
Chairman of Federation of Investment Managers Malaysia (“FIMM”),

FIMM Board members and senior management,

Ladies and gentlemen,

Good morning. Firstly, allow me to thank the Federation of Investment Managers Malaysia or “FIMM” for inviting me to deliver the keynote address at this year’s conference, which marks FIMM’s 30th anniversary celebrations. This milestone is testament to the unwavering commitment and contribution that FIMM has made to the Malaysian capital market.
It is indeed an opportune time to reflect on the journey of FIMM on the industry’s progress over the years and to discuss opportunities to ensure Malaysia’s fund management industry continues to play its pivotal role in mobilising savings and facilitating wealth accumulation.

Ladies and gentlemen
Over the past 20 years, the asset management industry has grown steadily as reflected by growth of the assets under management by more than 11 times to RM 906.5 billion in 2022 (from RM 79.8 billion in 2003). This reflects the significant contribution of this industry to the Malaysian capital market in widening ownership of assets and generating returns on long-term savings. Amongst others, this period was also characterised by easy monetary and financial conditions which were some of the key drivers of asset prices upward.
More recently, it appears that the tide has shifted as tighter monetary conditions globally and geopolitical developments have led to greater volatility across capital markets. Following a modest decline in total AUM as at end 2022 , I am pleased to share that industry AUM has grown to RM 964.8 billion in August 2023, surpassing the 2022 and 2021 levels despite the volatility that we have seen in markets globally this year.
Moving forward, the performance of the capital market, including the fund management industry, will continue to hinge upon key global and domestic developments, notably geopolitical developments, global monetary conditions and trade, and corporate earnings.

Facilitating sustainable investments to ensure the capital market’s resilience to climate risk

In the wake of the global pandemic, fund managers and regulators worldwide have undergone a profound realisation that the landscape of our world, both environmentally and within financial markets, has been irreversibly altered.
Environmental considerations have surged to the forefront, with an acute awareness of the interdependence between planetary health and economic resilience. Simultaneously, financial markets have witnessed a paradigm shift, compelling fund managers to reassess risk models and embrace innovative strategies for a more resilient and sustainable future.
Regulators have also been forced to recalibrate approaches, emphasizing adaptability, environmental consciousness, and a nuanced understanding of the interconnected forces shaping our global economy.
In this regard, the SC has acknowledged the need for greater guidance for capital market constituents in determining what qualifies as sustainable and as such, released the Principles-based Sustainable and Responsible Investment Taxonomy for the Malaysian Capital Market (SRI Taxonomy) last year. Its aim is to provide a clearer classification of economic activities eligible for sustainable investment. With the release of the SRI Taxonomy, the SC will proceed to the next phase of its development with more granular and detailed guidance.
Complementing this, the Advisory Committee on Sustainability Reporting (ACSR), set up by the SC with the endorsement of the Ministry of Finance, is developing a national-level approach for the implementation of the ISSB Standards in Malaysia. As you know, the ISSB standards are geared towards providing a global baseline for sustainability-related disclosures by companies, namely the investee companies that our funds will be investing in. The ACSR is an inter-agency committee with members comprising Bursa Malaysia, Bank Negara Malaysia, the Audit Oversight Board, Companies Commission of Malaysia, and the Financial Reporting Foundation.
These efforts to create a comprehensive taxonomy and to put in place a sustainability-related reporting framework for companies will clearly empower investors to make informed decisions aligned with their sustainability objectives, and to channel investments into sectors that will help Malaysia achieve its sustainable and climate goals.
Nevertheless, the industry faces the acute challenge of sustainability data – the availability and quality of sustainability data, which is crucial in helping fund managers identify SRI investment opportunities and make informed investment decisions. In addressing this, the Joint Committee on Climate Change (JC3), co-chaired by the SC and Bank Negara, has been actively working to identify and bridge data gaps related to climate and environmental risks, including the issuance of the Data Catalogue in 2022.
Additionally, to encourage the introduction of sustainable funds across the region, the SC spearheaded the development of the ASEAN Sustainable and Responsible Fund Standards (SRFS), which was launched at the ACMF Conference in October 2022. To facilitate the cross-border offerings of ASEAN Sustainable and Responsible Funds (SRF) under the existing ASEAN CIS Framework, the ASEAN Capital Market Forum (ACMF) just recently yesterday endorsed the Handbook for ASEAN CIS-SRF, marking a milestone in advancing sustainable investments in the region.

Cultivating opportunities in evolving business landscape

Ladies and gentlemen,
In understanding how structural evolutions will shape the future development of the industry and in assessing the level of preparedness of the industry to navigate this changing landscape, the SC conducted a survey to chief executives of the fund management industry this year to extract insights to steer our thinking for focused policy development that will continue to catalyse innovation across the industry.
The survey findings underscore the need to ensure competitiveness and sustainability of industry’s value proposition. Ultimately, this will empower investors by providing them with a more diverse array of options across the risk-return spectrum. To support this, we also understand the need for capacity building and development of talent through regionalisation of fund management.
The strategic recommendations developed for sustained growth cover measures to unlock new opportunities, promoting efficiency in the value chain and investor journey as well as strengthening the value of distribution channels. Following this, prioritisation of initiatives and implementation over the next three years will be undertaken through joint working groups with industry captains/leaders.

Efficiency of value chain and access for investors

Ladies and gentlemen,
Digital channels provide opportunities to enhance efficiency as well as widen access to products and services. In this respect, the survey findings underscore the need for the integration of electronic Know Your Customer (e-KYC) protocols within the industry. Aimed at enhancing the investor on-boarding experience and broadening access, the SC via the ‘Fund Management Industry Digitisation Group’ or FMDG will explore feasibility of eKYC on a blockchain.
As a next step, FMDG will gauge interest for participation in a pilot project with selected industry participants. The use of blockchain can simplify and streamline the KYC process by allowing the sharing of verified investor information among participating FMs. This will reduce redundancy in collecting and verifying customer information for multiple services or institutions. Investors would also have more control over their data, deciding which entities have access to their information and for what purposes.
In addition, there has also been greater usage of technology to improve investor access to alternative assets, for example property. This has been the case globally and the SC will continue to monitor developments and may consider facilitating tokenisation of alternative assets on a case-by-case basis.
As the SC continues to emphasise the importance of the investor experience and widening access for investors, a crucial facet involves the facilitation of a comprehensive fund platform encompassing all funds, fortified by investor-centric tools. At present, critical fund-related information is dispersed across disparate sources, resulting in a fragmented landscape. Recognizing the imperatives of transparency in nurturing a robust investor understanding and facilitating informed decision-making, the SC has mandated, since the preceding year, the publication of all fund reports and pertinent fund information on the websites of unit trust management companies.
In the long term, the SC urges the collective collaboration of industry entities and associations to institute an investor-centric platform. This platform with comparative investor tools is envisioned to serve as a centralized repository, unifying diverse fund-related data, thereby contributing to an elevated standard of transparency that is instrumental in enhancing investor comprehension and decision-making capabilities.

Future proofing by permitting CIS structures under the law

Ladies and gentlemen,
I would like to share that the SC has embarked on a review of the Capital Markets and Services Act (CMSA) and has undertaken consultation earlier this year. The review is part of the SC’s efforts to modernise the CMSA and promote efficiencies to enable the capital market to remain competitive while maintaining adequate investor protection.
As part of the consultation, the SC seeks to expand the definition and scope of fund products from traditional unit trust products to the contemporary framework of collective investment schemes (CIS). This reflects evolution in investment structures, embracing a more flexible and structure-neutral approach, for example foreign structures and corporate structures which may be more popular in other jurisdictions.
One of the key benefits of a collective investment scheme compared to a traditional unit trust lies in its structural versatility. Unlike unit trusts, which have a more rigid structure, CIS allows for different legal forms and structures, providing fund managers with greater flexibility to design investment vehicles that suit the specific needs and preferences of investors. This adaptability enables the creation of a diverse range of investment products, fostering innovation in fund design.

Conclusion

Ladies and gentlemen,
Finally, as part of Budget 2024, the Federal Government has approved a 60% tax exemption on business income derived by Islamic Fund Management Companies for four years from YA2024 to YA2027. We also welcome the announcement of the extension of income tax exemptions for fund managers on managing SRI funds until the year of assessment 2027. These measures are in line with efforts to continue development of Malaysia’s Islamic Fund Management Industry and SRI fund segment.
In closing, I would like highlight that through the collective efforts of the SC and industry working together to catalyse the next phase of growth, I am confident that we will see greater resilience and relevance for Malaysia’s fund management industry in the future.
With that let me once again express my appreciation to FIMM and everyone present here today. I wish you a productive conference ahead.

Thank you.