module 2b business challenges and regulatory …€¦ · · 2015-06-12economic policy objective...

SECURITIES INDUSTRY DEVELOPMENT CORPORATION © Copyright SIDC

Module 2B Business Challenges and Regulatory Expectations – What Directors Need to Know (Fund Management)

V2


2

Notice

• The views expressed here are solely those of the speaker in his private capacity and do not in any way represent the views of the Securities Industry Development Corporation (SIDC) or the Securities Commission Malaysia (SC).

• The cases mentioned in this presentation have been prepared, cited or described on the basis for discussion rather than to illustrate either effective or ineffective handling of a business situation.

• No part of this presentation may be reproduced, stored in a retrieval system

or transmitted in any form or by any means without the permission of the SIDC.


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What we will touch today…..

History

Elements of Regulation

Core Principles

Key responsibilities of a Director

Industry Landscape

Latest changes to Guidelines

Investment

Types of Investments

Performance measurements

Risk management

Key Internal Controls-BCP

Structure

Duties to Clients

Client relationship

Safeguarding of Assets

Segregation of Function/Recordkeeping

Governance

Compliance

Disclosure of Interest/Conflicts

Sales Practice Guidelines

Market Misconduct

Insider Trading/Price Sensitive Information/STR

Others

Outsourcing

Training/Education

Experiences Sharing

FAQ/References


Year Event

1959 First Malayan Fund was launched by Malayan Unit Trust Ltd.

1966 With the breakaway of Singapore, Asia Unit Trust took over operations, naming it Malaysian Investment Fund

1967 Amanah Saham Mara Berhad launched the first Mara Bumiputra Fund

1974 Amanah Saham Pahang, the first state-owned UTMC was established

1975 Kuala Lumpur Mutual Fund Berhad (Now known as Public Mutual Berhad) was established

1977 MIC Unit Trusts Berhad (Now known KL City Unit Trust Berhad) was established

1979 Through UTS, the government intended to achieve the New Economic Policy objective of increasing Bumiputra’s shareholding in public and private limited companies to 30% of total equity ownership

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1950s

1960s

1970s

1980s

1990s

2000s

2010s

1950s

1960s

1970s

Just A Little Background & History…. (Cont’d)



Year Event

1981 PNB launched the first national Bumiputra unit trust fund – ASN at $1.00.

1989 Malaysia’s first listed REIT launched by Arab-Malaysian Property Trust Management Berhad (Now known as AmProperty Trust Management Berhad)

1990 2nd national Bumiputra fund was ASB was launched. Stamp duty on transfer of units in UTS was waived

1991 SC introduced The Guidelines on Unit Trust Funds

1993 SC is responsible to regulate all matters relating to the unit trust industry (The Securities Commission Act)

Establishment of FMUTM to represent UTMC Arab-Malaysian Unit Trust Berhad (Now known as

AmInvestment Services Bhd) launched the first Syariah UTS

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1950s

1960s

1970s

1980s

1990s

2000s

2010s

1980s

1990s


Year Event

1994 SC revised The Guidelines on Unit Trust Funds

1995 Dana Johor, the first state UTS opened to both Bumiputra and non-Bumiputra investors

1996 The Securities Commission (UTS) Regulations, 1996 Stockbroking houses with Min. RM100 million paid-up capital

were allowed to set up UTMC Foreign fund management companies were allowed to set up

operations under new Guidelines issued by the SC EPF contributors allowed to withdraw money from A/C 1 to

invest in UTS

1997 The SC issued revised Guidelines on Unit Trust Funds The FMUTM Secretariat began registration of PDUT (Now

known as UTC) Funds under management affected by financial crisis

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1950s

1960s

1970s

1980s

1990s

2000s

2010s

1990s



Year Event

1998 The FMUTM published Understanding Malaysian Unit Trusts The SC commenced issue of Practice Notes to Guidelines on

Unit Trust Funds Lipper was endorsed by the FMUTM

1999 The FMUTM hosted the XVII International Investment Funds Conference in 2003

The Unit Trust Examination was introduced

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1950s

1960s

1970s

1980s

1990s

2000s

2010s

1990s



Year Event

2000 The industry preparations for the Y2K “bug” proved successful Issued first Guidelines for the registration of IUTA for Marketing

and Distribution or UTS Issued By-Laws covering its Disciplinary Proceedings against

members First UTS with a single selling and repurchase unit price with no

entry fee is launched, i.e. RHB Bond Fund First Islamic bond fund is launched, i.e. RHB Islamic Bond Fund Issued Practice Note 15 on Distribution of Returns from Unit

Trust Funds The first Malaysia Unit Trust Week was launched jointly by the

FMUTM and PNB The Securities Commission (Amendment) Act replaced the

Securities Commission (Unit Trust Scheme) Regulations. The regulation of UTS is now in a single Act

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1950s

1960s

1970s

1980s

1990s

2000s

2010s

2000s


Year Event

2001 - 2005

The Malaysian Capital Market Master plan announced by SC highlighted significant opportunities for growth in the unit trust industry over the next 10 years, including;

Online trading of units in UTS Encouragement for further development of the financial

planning industry Development of private pensions as an alternative of EPF Improved eligibility for EPF transfers to approved UTS Review of

restrictions on overseas-invested UTS Streamlined UTS approval procedures through the SC

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1950s

1960s

1970s

1980s

1990s

2000s

2010s

2000s


Year Event

2001 - 2005

Introduction of ETF Introduction of venture capital trusts

Host FMUTM hosted the XVII Annual Assembly of the International Investment Funds Associations

Introduced computerized UTE and registration of UTC SC issued Guidelines on Real Estate Investment Trust SC issued Guidelines on Exchange Traded Funds First exchange traded fund was launched by Aminvestment

Services Bhd i.e. ABF Malaysia Bond Index Fund First foreign UTS was launched by MAAKL Mutual Bhd, i.e.

MAAKL Pacific Fund Issued the first Standard and Practice Note on Standard Cut-off

Time for Unit Purchases and Redemptions

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1950s

1960s

1970s

1980s

1990s

2000s

2010s

2000s


Year Event

2005 - now

FMUTM was accorded SRO status and rebranded as FIMM CMSA was introduced to replace SIA in 2007 Global Financial Crisis (GFC) resulted in initiatives established

for investor protection- Disclosure requirements enhanced 2nd Capital Markets Master Plan was launched in 2011 Private Retirement Schemes (PRS) was established and

launched Liberalization of market participants shareholdings Continued progress on market innovation-equity crowd funding LOLA

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1950s

1960s

1970s

1980s

1990s

2000s

2010s

2000s

2010s


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Major Elements Of Regulation In Any Financial System

The protection of

Investor’s interest

Proper disclosure to

investors

Prevention of improper market practice

Control over market

participants


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Core Principles

The SC promotes a culture of compliance, professionalism, ethical standards and responsible conduct amongst fund management companies , its representatives and its employees…..with that the following core principles is to be complied to:

INTEGRITY CLIENT ASSET PROTECTION

SKILL, CARE & DILIGENCE COMMUNICATION WITH INVESTORS

ACTING IN CLIENT’S INTEREST COMMUNICATION WITH CLIENTS

SUPERVISION & CONTROL CONFLICT OF INTEREST

ADEQUATE RESOURCES COMPLIANCE CULTURE

BUSINESS CONDUCT DEALING WITH SC


Securities Commission

The primary regulator of the securities/derivatives

industry

Govern the operations and administration of the

UTS

Has powers to prosecute and impose penalties

Its powers are wide ranging, covering UTMC,

UTS, IUTA, CUTA, UTC and fund managers

responsible for investing the assets of the UTS /portfolios managed

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Regulatory Structure


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Functions Of The Securities Commission

• To advise the Minister of Finance on all matters relating to the securities and derivatives industries

• To regulate all matters relating to securities and derivatives contracts

• To ensure that the provisions of the securities laws are complied with

• To regulate the take-over's and mergers of companies

• To regulate all matters relating to unit trust industry

• To be responsible for supervising and monitoring the activities of any exchange, clearing house and central depository

• To take all reasonable measures to maintain the confidence of investors in the securities and derivatives markets by ensuring adequate protection for such investors

• To promote and encourage proper conduct amongst members of the exchanges, clearing houses, central depository and all licensed and registered persons (including UTC)


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Functions Of The Securities Commission (Cont’d)

To suppress illegal, dishonorable and improper practices in dealings in securities and dealings in derivatives, and the provision of investment advice or other services relating to securities or derivatives contracts

To consider and make recommendations for the reform of the law relating to securities and derivatives contracts

To encourage and promote the development of securities and derivatives markets in Malaysia including research and training in connection thereto

To encourage and promote self-regulation by professional associations or market bodies in the securities and derivatives industries

To license and supervise all licensed persons as may be provided for under any securities law

To promote and maintain the integrity of all licensed and registered persons in the securities and derivatives industries


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What Is Fund Management?

Management of a portfolio of securities or derivatives for investment

In Malaysia- FM companies licensed to carry out the regulated activity of fund management are holders of a Capital Markets Services License ( CMSL)- save for the relevant provisions of the CMSA.

The most significant player in managing investment portfolios are the fund management companies


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Investment Management Business

Asset Management Business or Investment Management Business in its current form is an amalgamation of different industries pursuant to the enactment of the CMSA 2007.

Companies undertaking investment management businesses can be loosely classified as:

a) Asset Management Companies

b) Unit Trust Management Companies

c) Asset Management Company (“AMC”) – means a company that can offer fund management services to institutions, corporations, individuals and may also include unit trust management companies. An AMC cannot manufacture, sell and manage retail unit trust but can offer wholesale funds. The regulated activity under the CMSA is Fund Management activity.

d) Unit Trust Management Company ("UTMC") - means a company that is authorized to issue or offer for purchase of units of a Unit Trust scheme. The regulated activity under the CMSA is Dealing in securities – restricted to unit trust activity.

e) Malaysia is a pioneer in the region with the establishment of the first unit trust fund in 1959. In the 1990s, the investment management industry experienced real growth with the liberalisation of guidelines that govern unit trust and asset management companies in Malaysia.


ASSET

MANAGEMENT COMPANIES

UNIT TRUST MANAGEMENT

COMPANIES

CMSL – Fund Management

CMSL – Dealing in Securities (restricted to

Unit Trust)

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AMC & UTMC

Dual Licensed Holder


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Asset Management Companies (“AMC”)

As at 31 December 2014, there are 77 licensed asset / fund management companies of which 20 are also Islamic fund management companies. (Source: Securities Commission’s website)

On 6 November 1996, the Malaysian Association of Asset Managers (MAAM) was formally established under the Societies Act, 1966 with the invitation of four established asset management companies to become founding members, along with the merchant banks who were involved in asset management operations. (Source : MAAM website)

Historically, fund management services were offered by merchant banks. In 1989 RHB Investment Management Sdn Bhd was one of the 1st few private asset management companies to be set up.

Typical services provided by an asset management company are professional fund management services including portfolio administration.


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Unit Trust Management Companies (“UTMC”)

As at 31 December 2014, there are 36 licensed unit trust management companies. (Source: Securities Commission’s website)

UTMC are members of the Federation of Investment Managers Malaysia (“FIMM”).

As of 28 February 2011, FIMM has been awarded the status of a Self Regulatory Organisation (“SRO”) by the Securities Commission.

FIMM also oversees the registration of unit trust funds for sale by UTMCs.

As an SRO, FIMM also overseas the distribution channels for unit trust funds. These channels can include the following:

"Unit Trust Consultant" or "UTC“, an individual who is duly registered with the FIMM to market and distribute unit trust funds.

“Institutional Unit Trust Adviser" or "IUTA“, an institution or organisation or a corporation that is licensed by the SC for the purpose of carrying out dealing in securities restricted to unit trusts and is duly registered with the FIMM to market and distribute unit trust funds.

"Corporate Unit Trust Adviser" or "CUTA“, an institution or organisation or a corporation that is licensed by the Securities Commission for the purpose of carrying out the regulated activities of financial planning and dealing in securities restricted to unit trusts and is duly registered with the FIMM to market and distribute unit trust funds.


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Legal And Regulatory Requirements

Both AMCs and UTMCs are governed by the Capital Markets Services Act 2007 (CMSA) which is regulated by the Securities Commission Malaysia.

An AMC carries a Capital Market Services License (CMSL) to conduct fund management while a UTMC carries a CMSL in dealing in securities (restricted to unit trust business).

Individuals that are carrying out the regulated activities on behalf of the company are required to have the Capital Markets Service Representative’s Licence (CMSRL).

Both licences are issued by the Securities Commission Malaysia.

At least one (1) director of the company is required to be a CMSRL holder.


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Legal And Regulatory Requirements (Cont’d)

Dealing in securities

Dealing in Derivatives

Advice on corporate finance

Fund management Investment advice

Financial planning

Dealing in securities (restricted to unit

trusts)

Regulated Activities


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Regulated Activities

Regulated Activities Asset Management Company

Unit Trust Management Company

Dealing in Securities - -

Dealing in Securities (Restricted to Unit Trust)

Dealing in Derivatives - -

Advice on Corporate Finance

- -

Fund Management

Investment Advice -

Financial Planning - -


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Legal And Regulatory Requirements (Cont’d)

Establishment Requirements

Specific Requirements Asset Management Company

Unit Trust Management Company

Investment Advisory Company

Minimum Paid Up Capital RM5.0 mil RM5.0 mil RM500,000

Minimum Share Holders Fund

RM2.0 mil (maintained at all times)

RM10.0 mil (maintained at all times)

N/A

Minimum Net Tangible Asset

N/A N/A RM50,000 (maintained at all times)

Minimum Licensed Director

One (1) CMSRL holder with 10 years experience in the

regulated activity

Registered with FIMM with minimum 10 years of relevant experience

One (1) CMSRL holder with 10 years experience in the

regulated activity

Composition of Board of Directors

The board of directors should comprise at least two (2) independent members, while maintaining at least one-third

(1/3) independent members at all times.

N/A

CMSRL Holders

At least two (2) CMSRL holders for each regulated

activity.

At least two (2) individuals registered with FiMM

At least two (2) CMSRL holders for each regulated

activity.

Investment Committee N/A Comprise of at least two (2) independent members, while

maintaining at least one-third (1/3) independent

members at all times.

N/A


AMC & UTMC / Investment Management

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Typical Organization Structure

Board of Directors Investment Committee

Shariah Adviser *

MD / CEO

Compliance Department

Investment Department

Fund Managers

Analysts

Central Dealers

Marketing / Client Servicing

Department

Fund & Portfolio Administration

Department

Operations / Finance

Department

Product Development Department

Internal Audit Department

Marketing

Client Servicing

Customer Service

Distribution (UTC, IUTA & CUTA)

Portfolio Administration

Fund Operations

Fund Accounting

Unit Holder Services

General Operations

Finance

Risk Management

Information Technology

Human Resource Applicable for AMC and UTMC Applicable for UTMC only Applicable for AMC only


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Duties & Responsibilities Of The Board

The Board is responsible for governing the administration of the Company and for exercising all such powers pursuant to the Articles of Association of the Company. In general, the Board is responsible for :

Providing strategic leadership to the Company;

Reviewing, approving and monitoring the implementation of the Company’s strategic business plans and policies;

Ensuring the Company maintains an effective system of internal controls and is able to identify and manage principal risks resulting in efficiency in operations and a stable financial environment;

Acting as a guardian of the Company’s corporate values and ethical principles in parallel with the goal to enhance shareholders’ value;

Monitoring as well as evaluating the performance of the Company to ensure that the performance criteria remains dynamic; and

Ensuring the formulation of a succession plan for the Company for long-term business continuity.


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Key Responsibilities of a Director of a CMSL

• A director is responsible for compliance with all laws, regulations & guideline. therefore at all times must ensure that

Regulated activities are only carried out by licensed persons

At least 1 director is a CMSRL holder= Executive Director

Compliance with the 11 principles , securities law, regulations and relevant guidelines

The company has an established, maintained and effective internal control framework- it must be able to detect abusive investment practice, conflict of interest if any in proprietary trades, and all other transactions ( employee & client)

The company conduct at least an annual review in internal controls

The company reports to the shareholder any findings from reviews

Written policies and procedure are in place

There is a written BCP plan

Policies and procedure on staff responsibility

Management is competent and supervised by Board


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Key Responsibilities of a Director (Cont’d)

• A director is responsible for compliance with all laws, regulations & guidelines, therefore at all times must ensure that

There is adequate financial, human and other resources suitable for business needs

Proper record system

At least 1 compliance officer in place

Matters raised by compliance officer raised and addressed

Safe guarding of clients assets

Timely disclosure of information to clients


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Investment Committee

The Investment Committee is responsible for the formulation of the Investment Objective, the Investment Policies and the Investment Strategy for the Fund. For UTMC, it has broad discretionary authority over the investments of the Fund. The Investment Committee also overseas the activities of the Manager which is responsible for research, securities recommendation and asset allocation.

The Investment Committee has the responsibility to decide and approve the following:-

Asset allocation;

Schedule of securities for purchase and disposal;

Risk exposure, e.g. country and specific market risks; and

Schedule of income distribution to Unitholders.


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Islamic Fund Management Company – Shariah Adviser

The Shariah Adviser functions independently of the Manager and has responsibility only to the Fund’s Unitholders.

The Shariah Adviser will review the investments of the Shariah Funds and advise the Manager on the conformance of the investments, operations and marketing aspects of all the Funds with the Shariah principles.

The duties and responsibilities of the Shariah Adviser are as follows:-

Ensure that the Fund is managed and administered in accordance with Shariah principles;

Consult with the Securities Commission where there is any ambiguity or uncertainty as to an investment, instrument, system, procedure and/or process;

Provide expertise and guidance in all matters relating to Shariah principles;

Act with due care, skill and diligence in carrying out its duties and responsibilities; and

Scrutinize the Fund’s compliance report and investment transaction reports to ensure that the Fund’s investments are in line with Shariah principles.


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Competitive Landscape

Competitive Landscape

Client Profile versus Risk Appetite

Optimizing Government

Incentive

Human Capital

Product Innovation

versus Time to Market

Tightening of Margin

Shifting Trends & Competitive Changes In Landscape


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Opportunities Abound

Product Innovation – Sophistication/ Technology

Diversification of Asset Classes

Strategic Alliances

Geographic Expansion – ASEAN Passport / MRA Initiative

Distribution & Market Reach Innovation

Market Segmentation – PRS / HNW


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UPDATES ON LATEST CHANGES


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Latest Changes Regulations / Guidelines - 1

GUIDELINE UPDATE CHANGE

Licensing Handbook

June 30, 2014 Introduction of the new

outsourcing guidelines

under Chapter 10 of the

Licensing Handbook

replacing the Guidelines on

Outsourcing for Capital

Market Intermediaries

Material outsourcing

arrangement no longer requires

approval from SC. Instead, CMSL

holder must notify SC within 2

weeks upon signing service level

agreement.

December 4, 2014

Amendment of Section 6.05 – Submission of Anniversary Reporting for Authorisation of Activity

CMSL holders are now required to

submit a semi-annual Fit and

Proper Compliance Report (Form

6A) on the fit and proper standing

of its licensed representatives

whose anniversary date fall due

within the reporting period within

7 days of reporting period

This replaces the previous

practice where Form 6 has to

submitted on each individual’s

licence anniversary date.


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Licensing Handbook

February 2015 Changes in minimum

qualification requirements

for CMSRL in financial

planning under Table 3, 4

and 7.

Review of the minimum

qualification requirements for

the purpose of obtaining a

Capital Markets Services

Representative’s Licence (CMSRL)

for Financial Planning by Financial

Planning Association of Malaysia

(FPAM)

The approved modules are no

known as:

Module 1 – Foundation in

Financial Planning;

Module 3 – Investment Planning

and Retirement Planning; and

Module 4 – Financial Plan

Construction and Professional

Responsibilities (Familiarisation

Programme).


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Licensing Handbook April 1, 2015

Added the requirement for

Capital Market Director

Programme (CMDP) in

Licensing Handbook and the

FAQ for CMDP.

4.02 Requirement for director to

attend Capital Market Director

Programme (CMDP)

- Effective from 1st May 2015,

directors of CMSL holders for

dealing in securities, dealing in

derivatives and fund management

in relation to portfolio

management must complete the

CMDP.

- Newly appointed directors must

complete CMDP within 6 months

from thedate of their

appointment. Directors who were

appointed prior to 1st May 2015

must complete the CMDP within

the timeline specified by the SC.


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Guidelines on Compliance Function for Fund Management Companies

25 April 2014 Addition of new section 1.04

under Chapter 1

Introduction

New clause stating the Guidelines

are in addition to and not in

derogation of any other guidelines

issued by the SC or any

requirements as provided for

under the securities laws and

must be read with:

Guidelines on Islamic Fund

Management; AML/CFT

guidelines; and

Licensing Handbook

Removal of Chapter 13 –

Anti Money Laundering

AML/CFT guidelines are provided

under the new Guidelines on

Prevention of Money Laundering

& Terrorism Financing for Capital

Market Intermediaries issued on

15 January 2014


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Guidelines on

Prevention of

Money

Laundering &

Terrorism

Financing for

Capital Market

Intermediaries

15 January 2014 This is a new guidelines

on AML/CFT issued on

15 January 2014

replacing the the

Guidelines on

Prevention of Money

Laundering & Terrorism

Financing for Capital

Market Intermediaries

issued on 31 March

2004.

The new Guidelines provide for a more enhanced framework for the purpose of complying with the updated international standards.The significant enhancements can be found in the following provisions:-

Paragraph 7 : Risk Based Approach Application

Paragraph 8 : Customer Due Diligence Paragraph 8.5 : Politically Exposed Person - Requirement for a risk management

system to identify PEP (Commonly used: World Check, AML Solution)

Paragraph 8.6 : High Risk Countries - Enhanced CDD measures for business

relationship from identified high risk countries

Paragraph 8.7 : Third Party Reliance - A reporting institution may rely on a third

party to conduct CDD at the point of establishing a business relationship. However, the ultimate responsibility and accountability of such CDD measures shall remain with the reporting institution



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Guidelines on Unit

Trust Funds

25 August 2014

Chapter 1 –

Introduction

Section 1.04

Section 1.08

Amended to state the basis where the SC may grant an

exemption or variation to any requirement under the

GUTF.

Inserted a new requirement to require any person

intending to offer a unit trust fund under the ACMF

Retail MoU framework to observe and ensure

compliance with the Standards of Qualifying CIS.

ACMF – ASEAN Capital Markets Forum

Qualifying CIS - means a unit trust fund–

(a)constituted or established in Malaysia, which has

been authorised by the SC for offer to the public in

Malaysia; and

(b) has been assessed by the SC as suitable, pursuant

to the Standards of Qualifying CIS, to apply to a host

regulator for cross-border offering to the public in a

host jurisdiction pursuant to the ACMF Retail MoU.


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Chapter 2 - Definitions

2.01 Amended due to the following

reasons:

(a) To insert new terms

associated with the ACMF Retail

MoU framework;

(b) To provide clarity on certain

terms used in GUTF; and

(c) Consequential amendments

due to the amendments to the

law (e.g. CMSA, Financial Services

Act 2013, Islamic Financial

Services Act 2013, etc).


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Chapter 3 –

The

Management

Company

Amended to reflect the current liberalisation as announced by the Prime

Minister on 9 June 2014 at the 2014 Invest Malaysia conference.

3.03 Previous provision Revised provision

3.04 A management company must–

a) be an entity incorporated in

Malaysia;

b) have a minimum of 30%

Bumiputera equity;

c) not have more than 49% foreign

equity; and

d) have a minimum shareholders’

funds of RM10 million at all

times.

3.05 Clauses 3.04(b) and (c) do not

apply to an Islamic fund management

company under the Special Scheme.

3.03 A management company must–

a) be an entity incorporated in

Malaysia; and

b) (b) have a minimum shareholders’

funds of RM10 million at all times.


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Chapter 4 –

The Trustee

Amended to clarify and enhance the requirement relating to the

registration of a fund’s property.

Section

4.07(c) Previous provision Revised provision

4.08 A trustee should ensure

that a fund’s property is–

a) clearly identified as the

fund’s property;

b) held separately from any

other asset/property held

by or entrusted to the

trustee; and

c) registered in the name of,

or to the order, of the

fund.

4.07 A trustee must ensure that a fund’s

property is–

a) clearly identified as the fund’s

property;

b) held separately from any other

asset/property held by or

entrusted to the trustee; and

c) registered–

(i) in the name of the trustee;

or

(ii) where the custodial

function is delegated, in the

name of the custodian to the

order of the trustee.


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Chapter 5- Delegation and

Outsourcing

Section 5.06 Amended to provide clarity as the

SC approves the delegation of

fund management function of a

management company.

(previously is states any

delegation of fund management

company’s function requires SC

approval, now only restricted

fund management function)

Section 5.12A Inserted a new requirement to

provide clarity that where the

trustee delegates the custodial

function of assets outside

Malaysia, this fee may be charged

to the fund.


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Chapter 8:

Investments of the

Fund

Removal of section

8.08 in previous

guidelines

Removed as the term “transferable securities” is now defined under clause

2.01 of the revised guidelines

Section 8.10 Amended to provide clarity as funds are only allowed to invest in foreign

countries where the regulators are ordinary and associate members of the

IOSCO.

Section 8.15(d) Amended to provide clarity on investment in real estate investment trusts or

property funds.

Previous provision Revised provision

8.16 The target fund must–

(d) operate on the principle of

prudent spread of risk and its

investments do not diverge from

the general investment

principles of these guidelines.

8.15 The target fund must–

(d) where the target fund is a fund other

than a real estate

investment trust or property fund, operate

on the principle of

prudent spread of risk and its investments

must not diverge

from the general investment principles of

these Guidelines.


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Chapter 9: Charges, Fees,

and Expenses

9.10(c) Amended to ensure existing unit

holders will be notified of the

increase in fees at least 90 days

in advance of such increase in

fees.

(previously no specified timeline

to notify unit holders)


Page|47



Chapter 13:

Applications, Notifications

and Reporting to the

Securities Commission

Malaysia

Section 13.02 Replaced with a new paragraph

13.02 to reflect ACMF Retail MoU

framework. (for cross border

selling)

Removal of sections 13.09(f)

and 13.09(i) in previous

guidelines

Removed the original sub-

paragraphs 13.09(f) and (i) that

requires the notification to the SC

on investment in foreign market

and unit split exercise.

Section 13.10(a) Amended for clarity and removed

the reference to “management

company” in light of the issuance

of Technical Note No. 1/2014 on

19 August 2014.


Page|48



Schedule E –

Submission of

Applications,

Notifications and

Documents

(1)(c): Application to

Act as

Management

Company of a Fund –

new Appendix IV

Replaced with a new paragraph (8)

to clarify that the SC may consider

varying the terms and conditions of

approval provided that justifiable

grounds are submitted to the SC.

(1)(c): Application to

Act as Trustee to a

Fund – new Appendix

III

Amended to include the

requirement for application to be

assessed as suitable to be a

Qualifying CIS, pursuant to the

Standards of Qualifying CIS.


Page|49



Schedule E: Appendix I(a) –

Submission of Applications for

Approval/Registration

(1)(c): Application to Act as

Management Company of a Fund –

new Appendix IV

Inserted a new item under the Appendix to

incorporate a new requirement for

management company of a Qualifying CIS.

(1)(c): Application to Act as Trustee

to a Fund – new Appendix III

Inserted a new item under the Appendix to

incorporate a new requirement for trustee

of a Qualifying CIS.

(2)(b): Application to Register or

Renew Registration for a Trustee –

Appendix II

Amended due to the following:

(a) To provide clarity that the requirement

to submit an undertaking by the trustee

should not be limited to before the

commencement of unit trust fund-related

business only; and

(b) To require, an undertaking by a trustee

of a Qualifying CIS that it will comply with

the Standards of Qualifying CIS.


Page|50



Schedule E: Appendix I(b) –

Notification and Submission

of Documents

Removal of table under (1):

Notification of New

Class(es) of Units

Removed as such notification is

no longer required.

(a)(ii): DECLARATION BY THE

APPLICANT IN RELATION TO

THE

ESTABLISHMENT OF A FUND

TO BE

DEEMED AS A QUALIFYING

CIS

Inserted a new declaration letter

for applicant in relation to the

establishment of a fund to be

deemed as a Qualifying CIS.


Page|51

RELATIONSHIPS BETWEEN FM/UTMC AND CLIENTS


Page|52

Manager –UTMC/FM

UTMC

• Make reports to the trustee regarding the purchase, sale and management of the investments .

• Promote and distribute or sell units in UTS

• Buy back units from those unit holders who wish to dispose of units

• Execution of investment decisions to raise liquidity for fund//portfolio

• Keep the accounting records of portfolio/UTS

• Calculate unit selling and repurchase prices, and to determine the amount of distributions payable to unit holders if UTS

• Maintain a register of unit holders in each UTS showing the units held by each unit holder

FM

• Pitching of investment management services to clients wishing to embark on a discretionary mandate relationship

• Keep the accounting records of portfolio/UTS

• Execution of investment decisions including to raise liquidity for fund//portfolio


Page|53

Trustee- UTMC/FM

• Maintains custody of the assets of the fund /portfolio.

• Ensures funds are invested in accordance with Trust Deed if UTS.

• Supervises the operations of UTS to ensure that its objectives are followed by UTMC

and that the interests of the unit holders are protected.

• Can remove one that fails to manage effectively and in accordance with the deed.

• Approves, monitors all financial transactions if UTS.

• Collects all income entitlements on investments held on behalf of investors.


Page|54

Unitholder-UTMC

• Responsible for the fees earned by UTMC and the trustee.

• Hold units.

• The value of a unit is determined by using a formula set out in the deed, which is

based on dividing the market value of the net assets of the UTS by the number of

units currently in circulation.


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Deed-UTMC

• It is a legal document that governs the operation of the Unit Trust.

• The Unit holders, Fund Managers and Trustees are legally bound by it.

• It spells out :

Rights and duties of the UTMC, Trustee and Unit holder

Maximum fees payable

Describe the investments in which UTS can be invested

Collection and distribution of income

Valuation of units

Determine price of units to be sold to investors, and bought from them, by

UTMC to be calculated


Page|56

Prospectus-UTMC

• It is required by law to provide potential and existing investors with all

necessary information to make an informed decision.

• Must be registered with the Securities Commission.

• Prospectus to be updated every 12 months.

• No sale of units can be made without a prospectus.

• Agent should go thru’ the prospectus with investor and explain fees and

charges, unit holder's rights, etc. (best way is through the Key Data).


Page|57

Agents of UTMC & Trustee

• A trustee may appoint a sub-custodian to hold UTS assets on its behalf.

• UTMC may appoint fund managers, asset consultants, managers of real estate,

and other specialists to assist in its role.

• The trustee and UTMC are responsible for the actions of any agent they appoint.


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Duties To Client

Responsibilities of a FM to a Client • Fees, charges and all remuneration must be fair, reasonable & transparent

• Valuations provided on agreed upon basis

• Statements & scheduled duly provided

• Confidentiality of information is in place governed by policies and procedure

• Establishment of a complaints register

• Prudent Investor Rule

• Conflicts of interest Disclosures

• Personal Account trading Policies

• Trade Crossings between clients portfolios

• Fair allocation of Trade

• Soft dollar dealings Policies

• Dealing Polices when through Related Party Stockbrokers

DUTY OF LOYALTY

DUTY TO ACT IN

GOOD FAITH

DUTY TO AVOID

CONFLICT OF INTEREST


Page|59

Client Relationship

• Client relationships are typically through funds invested or portfolios directly

managed.

• If funds, FM’s observe governance and oversight through documents such as

Prospectuses or Information memorandum- depending if the client is retail or

wholesale.

• If portfolios- governance and oversight will be guided by documents such as

Investment Management Agreements.


Page|60

Client Relationship - Prospectuses

• Typically prospectuses should incorporate the following to comply with all regulatory and legal requirements.

• Prospectuses should include, at a minimum:- a) clients’ risk profiles and investment objectives including any investment limitations,

restrictions or instructions; b) notification of any significant changes to the investment policy or investment

recommendation; c) clear authorisation from the clients for discretionary mandate; d) scope of services that will be provided by the fund management company

including frequency of written statements and reports relating to the clients’ portfolios;

e) fees and charges to be paid by the clients or any other remuneration received by the fund management company from any other person in relation to services provided to the clients;

f) details of custodial arrangement; g) basis of valuation to be used for any type of investments products; h) terms and conditions relating to soft commission, where applicable; i) liability of fund management company where there is a breach of the IMA


Page|61

Client Relationship – Investment Management Agreement

• For each portfolio, FM shall have an Investment Management Agreement (“IMA”) in place, which complies, with all regulatory and legal requirements.

• IMAs should include, at a minimum:-

a) clients’ risk profiles and investment objectives including any investment limitations, restrictions or instructions;

b) notification of any significant changes to the investment policy or investment recommendation;

c) clear authorisation from the clients when for discretionary mandate;

d) scope of services that will be provided by the fund management company including frequency of written statements and reports relating to the clients’ portfolios;

e) fees and charges to be paid by the clients or any other remuneration received by the fund management company from any other person in relation to services provided to the clients;

f) details of custodial arrangement;

g) basis of valuation to be used for any type of investments products;

h) terms and conditions relating to soft commission, where applicable;

i) liability of fund management company where there is a breach of the IMA


Page|62

Client Relationship – Investment Management Agreement (Cont’d)

• Sets out clients instructions of the IMA with regards to e.g. asset allocation, limits and

benchmark

• Can include investment style and approach

• Type of mandate e.g. balanced or an asset class

• Ranges for asset allocation

• Authorised investments with constraints

• Counterparty details

• Other relevant policies


Page|63

Investments

Generally, a UT may invest in

• Equities, debentures and warrants

• Cash, deposits and money market instruments

• Units/shares in collective investment schemes

• Derivatives.

• Unlisted securities (exclude approved to be listed shares, debentures & structured products) <=10% of NAV

• Foreign investments - limited to markets where the regulatory authority is a member of IOSCO

Discretionary portfolios are managed based on client sanctions


Page|64

Investments – Risk vs. Return

Low

er

Lower

Hig

her

Higher

Ret

urn

Risk

Money market funds

Sukuk funds

Balanced funds

Equity funds


Page|65

Investments – Portfolio Management

A suitable investment policy must be established :

• Be fair & equitable in allocation of orders

• Not to misuse information/participate in insider’s trading

-churning/front running is prohibited

• Client’s interest take precedence in transaction

• Disclose conflict of interest

• Provide sufficient research

• Take all effort in identifying, managing & mitigating risks

• Execute Investment Management Agreement (IMA) with clients when applicable


Page|66

INVESTMENTS – Trading PRACTICES

• Ensure “best execution” of trades for clients

• < 50% of trades with any broker annually

• “Arm’s length” transactions with related parties

• The transaction are within client’s mandate and limits

• Ensure sufficient monies or properties to meet the obligations of the transaction.

• Cross trades prohibited for staff/proprietary and client’s accounts; unless consented to.

• No ‘soft’ commission allowable for trades, unless declared

• Trade execution and confirmation checks are normally employed through an integrated system.

• Preferably, a straight-through process should be employed for front (dealing/ keying of orders by fund managers), middle (compliance, trade confirmation, settlements) and back office operations (back office support & report generation).

• This process should be independent of each other and executed by different group of people.

• A pre and post trade compliance monitoring should also be in place.


Page|67

Investments – Cross Trades

• Only in the best interests of both clients

• Transactions are executed on an arm’s length and fair value basis

• Document reason's prior to execution

• Activity is identified to both clients in their respective periodic in transaction reports or statements

• Transaction is executed through a dealer/financial institution

• Written prior authorization obtained in advance from clients

Authorization can be incorporated in the IMA

For UT, authorization from unit holders is not required but the policy on soft commission must be disclosed in prospectus.


Page|68

Performance Benchmarking And Evaluation

• An aspect of the Code Of Ethics

• Ensures funds can be compared on an apples-to-apples basis with and among each other.

To minimize “jazz-up” a report

e.g. :Global Investment Performance Standards (GIPS)

• Ethical standards that apply to the way investment performance is presented to potential and existing clients

• Covers calculation of returns, presentations & disclosures

• Voluntary and are not forced-upon the companies by the regulators

• Must be independently verified for purposes of marketing or reporting

• In Malaysia, Morningstar Research Pte Ltd and Lipper provide independent sources for comparative fund data and analysis.


Page|69

KEY INTERNAL CONTROLS

Risk Management

Internal Audit


Page|70

Key Internal Controls

A Risk Management Framework must include and be :

• Robust enough for continuous identification, assessment and monitoring of company risk

• Capable of monitoring and managing risks assumed on behalf of client

• Mitigating actions

• Established for functions outsourced: to perform due diligence on key risk areas and mitigation strategies

• Reviews of outsourced functions

• Have ability to identify new risks that arise

• Cultivate risk awareness culture in the Company and empowers Employee with the ability to identify and manage risks whenever they arise.

FM must conduct at least an annual review of the Risk Management Framework

What You Must Have, What You Must Know


Board of Directors

Internal Audit Department

Executive Director

Risk Agent

Risk Management

Department

• BOD is responsible, inter alia, for ensuring establishment of Risk Management Framework as well as an effective internal audit function.

• Internal Audit Department provides

independent assurance regarding effectiveness of implementation of Risk Management Framework.

• RMD provides central resource for

developing tools and methodologies for identification, assessment, quantification, aggregation, monitoring and control of risks. RMD can be a separate function independent of business and support units of FM

Page|71

Key Internal Controls

Eg: Structure For The Implementation Of Risk Management Framework


Page|72

Business Continuity Plan

• FM must ensure that critical operations can continue in the event of

interruptions.

• Must include Annual Review to test effectiveness.

• The plan must be capable of dealing with interruptions in outsourced functions

also

PLAN MUST INCLUDE ANNUAL REVIEW AND REPORT TO BOD


Page|73

Internal Audit

• The BOD is encouraged to establish an internal audit function alongside a

framework.

• The scope can be outsourced, subject to Outsourcing Guidelines.

• Albeit, BOD must ensure that the Framework incorporates

Planning, control and recording of all work is done;

Recording of all findings and recommendations; and

All concluded work is to be accompanied with a report.

• Reports must be reviewed and acted upon in the interest of client at all times


Page|74

Safeguarding Of Client’s Assets

• Governed by section 120 to 125 of the CMSA- “Treatment of Client’s Assets in Respect of Fund Management”.

• FM is responsible for ensuring compliance with the relevant provisions of the CMSA and other regulations, regardless of whether the monies or property belonging to clients is received in or outside Malaysia.

• All clients’ monies and properties shall be placed in trust account or CDS account that is maintained by the custodian (as defined by Sec 121 of CMSA) and duly appointed by the client. All properties shall be registered in the name of the client (or in custodian name, with the express approval of the client) and are separately identifiable from FM’s account.


Page|75

Safeguarding Of Client’s Assets – Segregation of Functions

• It is key that assets of an FM and its clients are maintained and recorded

separately.

• Managing of proprietary assets must also be managed by a separate CMSRL.

• Any co-mingling is prohibited.

• Transactions – instructions for any movement of assets CANNOT be via a third

party.

• Client assets must be kept separate via a custodian/trust account , as approved

by the client.


Page|76

Safeguarding of Client’s Assets – Recordkeeping

• Accurate & Comprehensive.

• Reconciliation must be consistent.

• Access to external parties e.g. auditors.

• Aligned to approved standards.

• Retention as per Law and Guidelines- at least 7 years for documents/2 years for

phone recordings.


Page|77

Safeguarding Of Client’s Assets – Recordkeeping

• FM shall ensure that any investments which it buys or holds for a client in the course of its business are properly registered in the client’s name or with the consent of the client or, in the name of an eligible nominee or in the name of a Fund that has been registered with the SC and that such assets are kept in a segregated account and could not be viewed as part of its corporate assets .

• FM shall arrange for the safe-keeping of any documents of title relating to those investments.

• A Custodian appointed with client’s consent should be either:-

Trust Companies incorporated under the Trust Company Act 1949

Amanah Raya Berhad

Subsidiary companies providing nominee services that are 100% directly owned by licensed banks, finance companies, merchant banks or stock broking companies.

Stock broking companies.

Any other person as approved by the SC.


Page|78

• Compliance

• Disclosure Of Interest

• Conflicts

• Sales Practices

GOVERNANCE - OVERSIGHT


Page|79

Compliance

• Definition of compliance:

“Systems or departments at companies and public agencies to ensure that personnel are aware of and take steps to comply with relevant laws and regulations”

Examples: Legal compliance, due diligence & risk management

• Guidelines on Compliance Function for Fund Managers – assist FMs in their efforts to substantially strengthen the internal controls and elevate the overall standards of ethical and prudential conduct in the investment management industry.

• Contribute towards enhancing investor protection and promoting the levels of market integrity.


Page|80

Compliance Officer – Responsibilities

• A Compliance Officer (CO) is key liaison to SC & reports to the BOD

• Establishes Compliance programme, Plans and Manuals

• Establish, Maintain & implement procedures to adhere to laws, regulations and Guidelines

• Detects breaches; reporting to the BOD and relevant Committees at least quarterly

• Communicates and disseminates to Board, employees

• Monitoring of licensed activities and licensed persons

• Training and education of employees

• Coordinating Compliance efforts

• Oversight on investment and operations administrations matters e.g. client account opening

• Submission of reports to SC

• For IFMC’s- the CO also must ensure adherence to Guidelines on Islamic Fund management


Page|81

Compliance Officer – Other Responsibilities

• As part of best practice and to be in compliance with the Anti-Money Laundering Act and Counter Financing of Terrorism (“AMLA CFT”) in the capital market, a FM must implement the recommendations of the FATF which include policies on “know your client” (“KYC”) and procedures on client due diligence (“CDD”).

• In addition, KYC would provide a guide to FM on the risk profile of each investor that is needed to be taken into account when recommending a suitable investment product to the respective investors.


Page|82

Compliance Committee

• Setting scope of investigation

• Review results of investigation

• Securing Board’s approval to proposed compliance system

• Approve final form compliance system and allocating responsibilities and authorities

• Devise supervisory programme

• Monitor installation and implementation of compliance system

• Coordinate all parties

• Review reports of each compliance failure, resulting action and discipline imposes


Page|83

Compliance Tools

• Board’s commitment and CEO’s endorsement

• Proper documents of compliance programme and up-to-date manuals and procedures

• Education and training of all directors and employees on compliance

• Legal audit

• Identification and controls of high risk areas

• An effective system for complaints monitoring and resolution

• Prompt changes

• Maintenance of detailed and complete records relating to compliance


Page|84

Compliance Officer – Summary of Scheduled Reporting Tasks

• Reporting to the Securities Commission – monthly, half yearly, annual

• Compliance Report to BOD – at all BOD meetings, at least on quarterly basis

• Compliance Report to Investment Committee

• IFMC - Compliance Report to Shariah Adviser

• IFMC - Reporting to Shariah Risk – monthly attestation of Shariah compliance


Page|85

Disclosure of Interest / Conflict of Interest

• FM must have Policies & Procedure for for company, BOD, investment committee member, employees to disclose all holdings of shares, securities and alternative products in the capital market space.

• Timeliness- upon joining and annually after

• FM must ensure that client interest is not superseded

• Records of disclosure must be kept.

• Proprietary holdings must be disclosed

• BOD/ICM members/Employees must also declare holdings held by nominees or related parties

• Transactions of any ED must be sanctioned by another Director or the CO

• Transactions of any employee must be sanctioned by a Director or the CO


Page|86

Disclosure of Interest / Conflict of Interest

• A FM must establish and maintain a Policy and Procedure on receipt of Gift/Benefits.

• A FM must also maintain a Gift Register.

• A FM must establish and maintain a Policy and Procedure on receipt of soft

commission/rebates, allowable only if sanctioned by client and for the use of in the

interest of the client.

• A FM must also maintain a similar Register and disclose details to clients in scheduled

reporting's/communication.


Page|87

Sales Practice Guidelines

This Guideline applies to all unlisted capital market products. except shares, debentures and Sukuk.

Scope of coverage is for both Product issuer and distributor

Fair treatment of investors

Product Highlight Sheet

Suitability Assessment

If issuer is a foreign entity and distributed by local entity, the BOD of the local entity is responsible.

The applicability is guided by category of investors ( see next slide)

Responsibilities of Directors

To ensure that the product distributor/issuer is responsible for ensuring that FM and its employees comply with Guidelines

Any breaches , may result in not only action under the law but recall or cessation of product and will affect the assessment of the licesed person


Page|88

Applicability of Categories

CATEGORY OF INVESTOR PRODUCT HIGHLIGHT SHEET

SUITABILITY ASSESSMENT

Accredited Investor

High Net Worth Entity (unless opt out) (unless opt out)

High Net Worth Individual

Retail Investor


Page|89

Fair Treatment by Product Issuer

Responsibilities of the Issuer BOD

• Product development incorporates investor related issues

• Suitability of product vis-à-vis the target investor group

• Fees to be charged reasonable and fair/where applicable Shariah Compliant

• Information to be provided will be reasonable and sufficient for informed decision

• Changes are kept informed

• Responsible to ensure that P & P is there for promotion,marketing and sale/distribution will not misrepresent/false/contain material omission

• Channel for investor complaints are well stated/adequately informed

• Online sales are adequately represented that it is without recommendation


Page|90

Fair Treatment by Product Distributor

Responsibilities of the Distributor’s Board Of Directors

• Ensure that the distributor has Policies & Procedures (P&P) in the interest of investors for promotion/marketing/sale/distribution of products

P&P must outline criteria for employees to act in honest/professional manner

P&P must ensure proper record keeping of Suitability assessment and Product Highlight Sheet .

Remuneration of sales personnel must not result in product pushing

Continued Up skilling of sales personnel/agents


Page|91

Product Highlight Sheet by Product Distributor

• Must be clear and concise for investor to make informed decision

• Must contain minimum salient features and fair comparison

• Must contain key risks associated

• Must contain all relevant costs involved e.g. fees/charges

• Must contain valuations basis/exit basis

• Must contain contact information

• Must be clear and simple language

• Must be clearly communicated to a potential investor of the availability of the PHS

• All PHS must have Responsibility Statements / Statement of Disclaimer

PHS is prepared by the Product Issuer

• If issuer is a foreign entity and distributed by local entity, the BOD of the local entity is responsible.


Page|92

Suitability Assessment by Product Distributor

• An exercise to gather information to form reasonable basis before recommending product

• Undertaken at point of assessment

• Subject to the relevant guidelines on persons exempted (Schedule 1 of Guidelines)

• Areas of focus is

Know your Investor

Investor Risk profile and Needs

Investors Investment knowledge


Page|93

Insider Trading/Price Sensitive Information

Insider Information and Other Regulations

• FM must have a very strict rule with regards to the usage of insider information. All employees are governed by the Code of Ethics and Chinese Wall & Insider Trading policies, where applicable The Code of Ethics prohibits the employee for any misuse of material non- public and price sensitive information relating to securities or other financial instruments. In accordance with the Code, the employee is expected to undertake all necessary precautions to protect the confidentiality of records when processing material non-public and price sensitive information.

• The Insider Trading Policy prohibits trading, either personally or on behalf of others, on material non-public information (including any price sensitive information), or communication such information to others who trade in violation of law (known as “insider trading” or “tipping”). The insider trading and tipping restrictions also goes beyond employees’ immediate families to prohibit employees from illegal profiting (or avoiding losses), or funneling illegal profits or losses avoided to any person. This also prohibits FM from insider trading and tipping in client accounts.

• General Prohibition

• Only licensed employees are allowed to provide investment advice to a client or manage client’s portfolio on a discretionary and non-discretionary basis.

Market Misconduct


BNM will review STR and contact the CO for further information/documents, if required.

If required, the CO shall submit an STR directly to the FIED of Bank Negara

Report such transaction to the Compliance Officer

Employee

Compliance Officer

Financial Intelligence and Enforcement

Department, Bank Negara Malaysia

Compliance Officer (CO) shall conduct further investigation. CO will conduct a thorough review of accounts and transaction with the Executive Director/MD/CEO and ascertain if there is a need to submit an STR

Any employee who has a suspicion of money laundering or terrorism financing

Page|94

Market Misconduct

Suspicious Transaction Report


Page|95

Outsourcing

• FM’s may outsource any function subject to OUTSOURCING GUIDELINES

• FM responsible to assess and monitor and conduct regular scheduled assessment, reported

to the BOD

• Notification to the SC or the Exchange is not required for outsourced functions that are

determined as non-material.

• A CMSL holder should refer to paragraph 10.02 of Chapter 10 of the Licensing Handbook;

in determining whether the outsourced function is a material or a non-material function.

This assessment process should be documented.

• A CMSL is also responsible for reporting to the SC on all assessment and conditions

precedent for such outsourcing activities


Page|96

Training And Education

• FM must ensure all Executive Directors and employees ( licensed and non) to be adequately trained.

• There is the need to foster a culture of continuous learning amongst individuals who carry on any capital market activities regulated under the Capital Markets and Services Act 2007 (CMSA).

• Through the CPE programme, it is hoped that investors will gain assurance that these capital market professionals do not only satisfy the fit and proper criteria but are also capable to perform their functions effectively, efficiently and fairly. In addition, the confidence of the international community will be enhanced as higher standards are being practised by them..

What is CPE ( Continuing Professional Education)?

• The CPE is a mandatory programme for capital market professionals to consistently update and/or refresh their technical knowledge, skills and ethical standards as has been collectively prescribed under the Securities Commission Malaysia’s (SC) Licensing Handbook and the Guidelines on Investor Protection (IP Guidelines) jointly issued by the SC and Bank Negara Malaysia.

http://www.sc.com.my/capital-markets-and-services-act-2007/











http://www.sc.com.my/licensing-handbook/




Page|97

Training And Education (Cont’d)

Who falls under the CPE requirements?

• The CPE applies to all individual licensed persons and employees of registered persons who conduct capital market activities as regulated under the CMSA.

• FM must ensure a Training register is kept for all training attended by its licensed persons.

How much should I do?

• As a CMSRL holder, the minimum requirement would be for you to accumulate 20 points

• CPE points is required in a year on or before the anniversary date of their licence by carrying out any of the CPE-recognised activities.


Page|98

An investment management company (that conducts both asset management business and the unit trust business) is governed by the following Acts and guidelines issued by the regulators:

Capital Market Services Act 2007

Guidelines on Unit Trust Funds

Guidelines on Wholesale Funds

Guidelines on Compliance Function for Fund Management Companies

Guidelines on Marketing and Distribution of Unit Trust Funds

Guidelines on Unit Trust Advertisement and Promotional Materials

Prospectus Guidelines on Collective Investment Scheme

Licensing Handbook

Guidelines on Online Transactions and Activities in Relation to Unit Trust

Guidelines on Outsourcing For Capital Market Intermediaries

Guidelines on Prevention of Money Laundering and Terrorism Financing for Capital Market Intermediaries

Guidelines on Islamic Fund Management (for companies that carry Islamic fund management businesses

Guidelines on Real Estate Investment Trust

Guidelines for the Appointment of a Related-Party Trustee

Guidelines on Islamic Real Estate Investment Trusts

Guidelines for the Offering, Marketing and Distribution of Foreign Funds

Guidelines on Exchange Traded Funds

Guidelines on Due Diligence Conduct for Corporate Proposals

Guidelines

Securities Commission Malaysia


Page|99

Guidelines (Cont’d)

For an Islamic investment management company (i.e. investment management company that operates in line with the Shariah principles), it is also governed by the following additional guidelines:

Guidelines on Islamic Fund Management

Registration of Shariah Advisers Guidelines

Federation of Investment Managers Malaysia (FIMM)

• Additional guidelines which would apply to UTMCs

• Self-regulatory organization for the unit trust management industry in Malaysia

Guidelines for Registration of Institutional Unit Trust Advisers (IUTA) for the Marketing and Distribution of Unit Trust

Guidelines for Registration of Corporate Unit Trust Advisers (CUTA) for the Marketing and Distribution of Unit Trust

Code of Ethics and Standards of Professional Conduct for The Unit Trust Industry

Investment Management Standards (IMS)

By-Laws Relating to the Procedures for Disciplinary Proceedings


Page|100

Case 1

Scenario

An investor banks in a third party cheque for RM3 million into his unit trust.

• Last investment made more than 6 months

• Previous transactions never amounted more than RM50k

• Investment made into a cash management fund

Q: What kind of due diligence should have been made and under what guidelines should the UTMC have made its decision?


Page|101

Case 2

Scenario

An institutional investor invests RM1 million into an equity UT. The transaction was carried out by an agent of the UTMC.

• The agent did not get the necessary sign of PHS and Suitability Assessment

• No performance reports was received

• Scheduled statements was received and signed off by the agent, not company

Q: What should have the investor been asked to do and should have received


Page|102

Case 3

Scenario

For the year 2014, FM ABC had conducted considerable large number trades with a brokerage firm, XYZ Securities Sdn. Bhd. who received brokerage commission of RM2 million as a result. In view of the good business it has with ABC, XYZ Securities Sdn. Bhd. decided to give a cash rebate amounting to RM150, 000.00 from the brokerage fee they received. ABC then used that cash to pay for its subscription fee for Bloomberg and FTSE indices because it views that the services are of demonstrable benefit to its client and would assist in the decision making process relating to client’s investments.

Which statements below describe correctly the above scenario?

• Allowed. The cash is received by ABC it is being used to pay for services that are of demonstrable benefit to client.

• Allowed. This is a soft commission arrangement that is allowed under SC’s Guidelines on Compliance Function for Fund Management Companies

• Not allowed. Any rebates received must be directed to the account of relevant clients.

• Not allowed. The services described above do not fall under the scope of soft commission arrangement.


Page|103

Case 4

Scenario

A client of ABC has signed two Investment Management Agreement (“IMA”). One IMA is a discretionary mandate to invest in equities only. The other IMA is a discretionary mandate to invest in sukuk and equities. In both IMAs there is no clause on the conduct of cross trades.

The fund manager now wants to conduct a cross trade between the two accounts. He has obtained client’s consent for the trade via a written letter. The trades will executed on fair value and an arm’s length basis. It will also be in the best interest of both accounts. However, the proposed trades were rejected by the compliance officer. Why?

• The compliance officer does not feel comfortable with the proposed cross trades.

• The IMA of the client does not allow fund manager to execute cross trades.

• The trades won’t result in a change of beneficial ownership


Page|104

Case 5

Scenario

Nora is a portfolio manager who invests significantly in the shares Good Star Bhd, a public listed finance company. Nora’s husband is works in the finance department of Good Star Bhd. She was informed by her husband that Good Star’s accounts is showing loss in the 3rd quarter of the year. The company will announce its quarterly result in a week’s time. With that information Nora proceeded to sell all of shares of Good Star from her portfolio.

Please select a statement which BEST describes the scenario above:

• Nora has committed the insider trading offense

• Nora can be seen trying to manipulate the market

• Both Nora and her husband can be charged for insider trading

• Both Nora and her husband are manipulating the share price of Good Star Bhd.


Page|105

Acknowledgements

• SIDC COURSE MATERIALS - MODULES 9/10

• RELEVANT GUIDELINES OF SC

• PERSONAL MATERIALS


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