January 2008: Amendments to the Listing Requirements of Bursa Malaysia Securities Berhad in relation to Corporate Governance

The Listing Requirements were amended to raise the corporate governance standards amongst listed issuers and enhance investor confidence. The key amendments are in the following aspects:

    • Requiring all Audit Committee members to be non-executive directors

    • Mandating the internal audit function in listed issuers and requiring the internal audit function of listed issuers to report directly to the Audit Committee

    • Enhancing disclosure in the annual reports of listed issuers to include information pertaining to the internal audit function

    • Expanding the functions of the Audit Committee to include the review of the adequacy of the competency of the internal audit function

    • Setting out the rights of the Audit Committee to convene meetings with external auditors, internal auditors or both, excluding the attendance of other directors and employees of the listed issuer

    • Clarifying that Bursa Securities may “approve” such other requirements relating to the financial-related qualifications or experience that must be fulfilled by at least one audit committee member and the signatory to the statutory declaration in relation to the accounts

    • Requiring listed issuers to submit a copy of written representation or submission of external auditors’ resignation to Bursa Securities as provided under section 172A of the Companies Act 1965

September 2007: The Capital Market Services Act 2007 came into force

The Capital Market Services Act (CMSA), which consolidates part of the Securities Commission Act (SCA), the Securities Industry Act, and the Futures Industry Act, came into force. The CMSA introduced new provisions which widened the enforcement powers of the Securities Commission (SC). Under the CMSA, the SC, through civil actions, can obtain compensation of up to three times the pecuniary gain made or loss avoided for a range of offences including false trading, stock market manipulations and the use of manipulative and deceptive devices.

August 2007: Companies (Amendment) Act 2007

The Companies (Amendment) Act 2007 that came into operation on 15 August 2007 had brought significant changes to the corporate governance framework. In relation to the board of directors, the Companies (Amendment) Act 2007 introduces amongst others, the business judgement rule and interested directors are not permitted to participate or vote. Furthermore, amendments were made to the disclosure of interests in contracts and the functions and powers of the board have been inserted.

October 2005: SC revises Prospectus Guidelines

In order to further expedite the processing of corporate proposals and to boost the efficiency of raising funds in the Malaysian capital market, the SC has revised its Prospectus Guidelines to facilitate the shift from a pre- to post-vetting prospectus registration regime.
The key objectives of the revisions to the Prospectus Guidelines are as follows:

  • Alignment with international best practice standards

  • Addressing market trends

  • Improving investor decision making

  • Simplifying disclosure requirements

With the post-vetting regime, compliance and enforcement operations will be strengthened to address defective disclosures to enhance investor protection through improved market discipline.

This new regime is in line with SC’s move towards an enhanced disclosure-based regulation regime that expects higher standards of disclosure, due diligence and corporate governance.

September 2005: Guidelines on Corporate Governance for Licensed Institutions issued by Bank Negara Malaysia

As part of the ongoing efforts towards enhancing corporate governance among licensed institutions, the revised Guidelines on Corporate Governance for Licensed Institutions (the revised Guidelines) was issued in September 2005. The primary objective of the revised Guidelines is to promote the adoption of effective and high standards of corporate governance practices by licensed institutions and bank/finance holding companies. The revised Guidelines prescribe broad principles and minimum standards as well as specific requirements for sound corporate governance, which licensed institutions and bank/financial holding companies are expected to adopt.

The revised Guidelines are formulated on the fundamental concepts of responsibility, accountability and transparency, with greater emphasis on the role of the board and management. Amongst the key elements of the revised Guidelines include the requirement on the separation between shareholders and management, a clear separation between the roles of Chairman and Chief Executive Officer, enhances role and composition if independent directions, establishment of board committee (i.e Nominating Committee, Remuneration Committee and Risk Management Committee), limited vetting for the appointment of Deputy Chief Executive Officer / Chief Finance Officer (or other key positions) of licensed institutions and limitation on the number of Executive Directors on the board.

March 2005: Listing of Bursa Malaysia

In line with the recommendations made in the Capital Market Masterplan, Bursa Malaysia Berhad was listed on the Main Board of Bursa Malaysia Securities Berhad on 18 March 2005. The listing exercise is aimed at enhancing both the profile of Bursa Malaysia as a competitive global exchange and the competitiveness of the Malaysian capital market. The listing is also geared towards instilling greater discipline in enhancing transparency and efficiency at the exchange.

January 2005: Review of PN4 and PN10 Framework to Enhance Quality of Listed Companies

Bursa Malaysia reviewed the framework for Practice Note No.4/2001 (PN4) and Practice Note No.10 (PN10) by amending its Listing Requirements and Practice Notes (the “said amendments”). The said amendments, which took effect from 3 January 2005, are a key effort to further improve and strengthen the quality of companies listed on the exchange and are aimed at expediting the time taken by listed companies with unsatisfactory financial condition and the level of operations, to regularize their condition. The said amendments also help to further instil the practice of good governance by necessitating listed companies to be continuously conscious of the need to monitor the management of their affairs effectively, so as to avoid triggering the relevant prescribed criteria that may lead to suspension and de-listing.

The previous framework under PN4 and PN10 was introduced in 2001 to ensure that sufficient disclosure was made about listed companies that were financially distressed or had inadequate level of operations and to ensure that such companies took steps to expeditiously restructure to address their unsatisfactory condition. The PN4 and PN10 framework had served its objectives well, but given the improvements in the economic conditions and Bursa Malaysia’s intention to continuously enhance the qualities of companies listed on the exchange, the enhancements made via the said amendments are timely and necessary.

Under the new framework, listed companies with unsatisfactory financial condition and level of operations (other than cash companies) will have 8 months to submit their regularization plans to the relevant authorities for approval, failing which their securities will automatically be suspended within the prescribed time period and de-listing procedures will be undertaken against such companies. The new framework also provides that cash companies are subjected to requirements set out in PN10 but in addition, such companies are given 12 months to submit their regularization plans to the relevant authorities for approval, failing which they may be suspended or de-listed.

The new framework applies to listed companies that trigger the prescribed criteria after 3 January 2005. For existing PN4 and PN10 companies however, the requirements under the previous framework will continue to apply. Bursa Malaysia will be adopting a stricter stance when considering any applications for extension of time from existing PN4 or PN10 companies whereby companies making such applications must demonstrate that significant progress has been made by them in their endeavours for regularization and that completion of the relevant obligation, for which they require more time, is imminent. Such listed companies will also be required to keep the market informed of their regularization efforts through announcements upon compliance or non-compliance with the prescribed obligations.

January 2004: Amendments to the securities laws enhance enforcement / investor redress mechanisms

Pursuant to the demutualisation of the Kuala Lumpur Stock Exchange, the Securities Industry Act 1983 was amended to grant the SC an enhanced range of sanctions that it can impose for breach of, inter alia, the exchange listing requirements. The range of sanctions include pecuniary penalties (not exceeding RM1 million), reprimands, directions for compliance, and directions to remedy or mitigate the effect of the breach, including the power to direct the making of restitution to any persons aggrieved by such breach.

Provisions were also introduced to enhance investor avenues for judicial redress in the case of contraventions of, inter alia, the Securities Industry Act 1983 or the exchange listing requirements through provisions which now enable aggrieved persons to seek a wide range of orders by applying to the High Court, including an order restraining the breach of a relevant requirement and orders for the purpose of remedying or mitigating the effect of the contravention, including the making of restitution to any persons aggrieved by such breach. This development is in line with the general effort by the SC to broaden avenues for private enforcement by the market and strengthens the ability of the regulatory framework to facilitate stronger and more effective market-based regulation.

January 2004: Amendments to securities laws introduce Provisions Governing Whistle Blowing

In January 2004, amendments to the Securities Industry Act 1983 came into effect; which introduced novel whistle blowing provisions into securities law. The two key components of the whistle blowing provisions include –

  • Mandatory duty for auditors to report to the relevant authorities breaches of securities laws and listing requirements. This requirement supplements existing requirements in the Companies Act imposing a similar duty on auditors to report to the relevant authorities breaches of company law; and

  • Protection against retaliation for specific categories of persons, namely chief executive officers, company secretaries, internal auditors and chief financial officers who report to the authorities on company wrongs. The protection against retaliation includes protection against discharge, discrimination, demotion and suspension by the company on the whistle blower.

April 2003: SC introduces merit demerit incentives in Policies and Guidelines on Issue/Offer of Securities

The Finance Committee Report on Corporate Governance had broadly supported the concept of employing non-penal incentive structures to persuasively compel listed companies to take cognisance of the need to address corporate governance issues.

Consonant with this, the SC’s revised Polices and Guidelines on Issue/Offer of Securities (released on 1 April 2003) intrinsically incorporate incentive structures of this nature within its framework. In application, the framework broadly facilitates speedier approval by the SC of corporate proposals by companies which have a good track record in terms of corporate conduct.

January 2001: Major revamp of Exchange Listing Requirements

The revamped Exchange Listing Requirements, released on 22 January 2001 is widely recognised as a major milestone in Malaysian corporate governance reform. Its release marked the successful implementation of a significant component of the recommendations in the Finance Committee Report on Corporate Governance.

A key focus of the revamped listing requirements was the enhancement of standards of corporate governance and investor protection amongst listed companies through the introduction of new provisions and the strengthening of existing provisions in key aspects of regulation, including corporate disclosure and reporting, internal controls, directors rights and obligations and the general protection of minority shareholders interests.
Noteworthy highlights arising from the revamp include –

  • New rules relating to disclosures on the extent to which companies comply with the Malaysian Code on Corporate Governance;

  • New rules relating to board composition and the requirement that 1/3 rd of the board be comprised of independent directors;

  • New rules relating to the enhancement of the composition, role and function of audit committees. This reform builds on the pre-existing mandatory requirement for listed companies to establish audit committees which was introduced in 1993;

  • New rules requiring the mandatory accreditation of all directors of public listed companies (PLCs);

  • New rules relating to disclosure by directors reporting on the state of internal controls;

  • Enhancement of existing rules on related party transactions; and

  • Clarification and streamlining of existing rules on exchange’s corporate disclosure policy in relation to both immediate and periodic reporting.

Notably, the obligation imposed on listed companies to ensure information submitted to the exchange is accurate, clear and unambiguous has been extended to both the directors and corporate advisors of listed companies.

July 2000: Amendments to securities law to harmonise regime for regulation of prospectuses

In the move towards greater coherence and rationalisation of the regulatory framework governing listed companies, measures were taken by the SC and the Registrar of Companies (the functions of the Registrar of Companies have now been subsumed in the Companies Commission) to simplify and rationalise the regulatory regime for prospectuses.

The Securities Commission (Amendment) Act 2000 which came into force on 1 July 2000 effectively delineated and streamlined the responsibilities of the SC and the Registrar of Companies in the area of prospectus regulation, resulting in greater legal and regulatory certainty and provided the foundation for more rigorous and effective regulation in this area.

December 1999: Policies and Guidelines on Issue/Offer of Securities amended to facilitate equity participation by independent directors

One of the means to encourage independent or non-executive participation on the board of listed companies is to ensure that the regulatory framework is facilitative of equity participation by such directors. In line with this, amendments to the SC Policies and Guidelines on Issue/Offer of Securities (released December 1999) had inter alia, outlined the regulatory framework for this activity.

A related note in this context is that the exchange listing requirements now require at least 1/3 rd of the board to comprise of independent directors (amendments released January 2001).

August 1999: Exchange Listing Requirements Mandate Quarterly Reporting

The exchange listing requirements were amended to require quarterly reporting of financial information (effective August 1999), prepared in accordance with approved accounting standards of the Malaysian Accounting Standards Board.

Quarterly reports must now include the income statement, balance sheet, cash flow statement and explanatory notes. Immediate and periodic disclosures of listed companies, including the provision of current and historical data, are available to the market through KLSE-Link, an internet information repository operated by the exchange.

January 1999: Revamp of Malaysian Code on Takeovers and Mergers

The revamped Malaysian Code on Takeovers and Mergers was amended (effective 1 st January 1999) to require higher standards of corporate disclosure and behaviour from those involved in mergers and acquisitions, based on international best practice.

It sought to ensure that minority shareholders are afforded with a fair opportunity to consider the merits of an offer in deciding whether they should retain or dispose of their shares in the context of a general offer pursuant to the Code.

July 1998: Listing requirements strengthens rules on related party transactions

Fol lowing a number of widely reported abuses by controlling shareholders in related party transactions, the SC and the Kuala Lumpur Stock Exchange in July 1998 introduced revisions to Rule 118 of the exchange listing requirements which inter alia, requires a company to appoint an independent corporate advisor to advise the minority shareholders of the company as to fairness and reasonableness of a transaction.

The amended listing requirements clearly prevent directors, substantial shareholders and connected persons with such directors or substantial shareholders, from voting on any resolution on the related interested party transaction.