World Bank Bhd, Bursa Malaysia Depository Sdn Bhd; and Bursa Malaysia Bonds Sdn Bhd FIMM Federation

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Transcript of World Bank Bhd, Bursa Malaysia Depository Sdn Bhd; and Bursa Malaysia Bonds Sdn Bhd FIMM Federation

  • This volume is a product of the staff of the International Bank for Reconstruction and Development/The

    World Bank. The World Bank does not guarantee the accuracy of the data included in this work. The

    findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of

    the Executive Directors of the World Bank or the governments they represent.

    The material in this publication is copyrighted.

    FINANCIAL SECTOR ASSESSMENT PROGRAM

    MALAYSIA

    IOSCO OBJECTIVES AND PRINCIPLES OF SECURITIES REGULATION

    DETAILED ASSESSMENT OF

    IMPLEMENTATION FEBRUARY 2013

    THE WORLD BANK INTERNATIONAL MONETARY FUND FINANCIAL AND PRIVATE SECTOR DEVELOPMENT

    VICE PRESIDENCY

    EAST ASIA AND PACIFIC REGION VICE

    PRESIDENCY

    MONETARY AND CAPITAL MARKETS

    DEPARTMENT

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  • 2

    Contents Page

    Glossary .....................................................................................................................................3

    I. Summary, Key Findings, and Recommendations ..................................................................6A. Introduction ...............................................................................................................6B. Institutional and Market StructureOverview .........................................................7C. Preconditions for Effective Securities Regulation ..................................................15D. Recommended Action Plan and Authorities Response .........................................28

    II. Detailed Assessment ...........................................................................................................32 Tables 1. Summary Implementation of the IOSCO PrinciplesDetailed Assessments ....................202. Recommended Action Plan to Improve Implementation of the IOSCO Principles ............283. Detailed Assessment of Implementation of the IOSCO Principles .....................................33

  • 3

    GLOSSARY

    ABS Asset-Backed Securities

    AML Anti-Money Laundering

    AMLATFA Anti-Money Laundering and Terrorist Financing Act (2001)

    ANC Adjusted Net Capital

    AOB Audit Oversight Board

    ARAMIS Automated Real time Alerts for Market Intelligent Supervision (Bursa Malaysia Market Surveillance System)

    ARMADA Automated Risk Management and Decision Making Analysis System

    BAFIA Banking and Financial Institutions Act 1989

    BNM Bank Negara Malaysia (Malaysian Central Bank)

    BPA Bond Pricing Agency

    BTS Bursa Trade Securities (Bursa Malaysia Securities Trading System)

    Bursa Malaysia Bursa Malaysia Berhad (Malaysian Exchange Holding Company)

    CAR Capital Adequacy Ratio

    CBA Central Bank of Malaysia Act 2009

    CG Code Malaysian Corporate Governance Code (for publicly listed companies)

    CIS Collective Investment Scheme

    CMDF Capital Markets Development Fund

    CME Chicago Mercantile Exchange

    CMP1 Capital Market Masterplan 1 (20012010)

    CMP2 Capital Market Masterplan 2 (20112020)

    CMSA Capital Markets & Services Act, 2007 (as amended)

    CMSL Capital Market Services License

    CMSRL Capital Markets Services Representative License

    CP Clearing Participant (at the derivatives clearing house)

    CPO Crude Palm Oil

    CRA Credit Rating Agency

    CUTA Corporate Unit Trust Adviser (sells unit trusts and provides financial planning)

    ED Executive Director (of the SC)

    ETF Exchange Traded Funds

  • 4

    ETP Bond Electronic Trading Platform (for trading and reporting OTC bond transactions)

    Exchange Group

    The subsidiaries under Bursa Malaysia that operate the securities and derivatives exchanges, the securities and derivatives clearing services, depository services and bond trading and trade repository services: Bursa Malaysia Securities Berhad; Bursa Malaysia Derivatives Berhad; Bursa Malaysia Securities Clearing Sdn Bhd; Bursa Malaysia Derivatives, Clearing Sdn Bhd, Bursa Malaysia Depository Sdn Bhd; and Bursa Malaysia Bonds Sdn Bhd

    FIMM Federation of Investment Managers Malaysia

    FMC Fund Management Company (discretionary portfolio manager)

    FRA Financial Reporting Act, 1997

    FRF Financial Reporting Foundation

    FRS Financial Reporting Standards (Malaysian)

    FSEC Financial Stability Executive Committee

    High Level Group

    High Level Financial and Market Stability Group

    JSG Joint Surveillance Group

    IAC Independent Advice Circular

    IASB International Accounting Standards Board

    IAS International Accounting Standard

    ICM Islamic Capital Markets

    IFAC International Federation of Accountants

    IFRS International Financial Reporting Standards

    IO Investigating Officer

    IOSCO International Organization of Securities Commissions

    ISA International Standards on Auditing

    ISQC International Standards on Quality Control (auditors)

    IUTA Institutional Unit Trust Adviser (financial institution or other regulated entity authorized to sell CIS)

    KLCI Kuala Lumpur Composite Index

    MASB Malaysian Accounting Standards Board

    MGS Malaysian Government Securities

    MIA Malaysian Institute of Accountants

    Minister Minister of Finance

  • 5

    Ministry Ministry of Finance

    MMOU IOSCO Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information

    OTC Over-the-counter

    PAC Persons Acting in Concert (in a take-over bid context)

    PIE Public Interest Entity (these include companies listed on the stock exchange and institutions that are subject to supervision by Bank Negara Malaysia and the Securities Commission)

    PID Public Interest Director

    PIDM Perbadanan Insurans Deposit Malaysia (the Malaysian Deposit Insurer)

    PIDM Act Perbadanan Insurans Deposit Malaysia Act, 2011

    PO Participating Organization (member firm in Bursa Malaysia Securities)

    RAC Risk Adjusted Capital

    REF Registered Electronic Facility

    REIT Real Estate Investment Trust

    Regulatory Guidance

    Guidance on the Regulatory Role of Bursa Malaysia Berhad

    SAC Shariah Advisory Council (part of the SC)

    SC Securities Commission Malaysia

    SCA Securities Commission Act 1993

    SICDA Securities Industry (Central Depositories) Act, 1991

    SIDC Securities Industry Development Corporation

    SIDREC Securities Industry Dispute Resolution Centre

    SIFI Systemically Important Financial Institution

    SMARTS Securities Markets Automated Research Trading and Surveillance System

    SRO Self-Regulatory Organization

    SROC Systemic Risk Oversight Committee

    Take-over Code Malaysian Code on Take-overs and Mergers, 2010

    TCP Trade Clearing Participant (at the Securities Clearing House)

    TP Trading Participant (member firm at Bursa Malaysia Derivatives)

    UTC Unit Trust Consultant (individual selling unit trusts)

    UTF Unit Trust Fund (CIS)

    UTMC Unit Trust Management Company (operator of a CIS)

  • 6

    I. SUMMARY, KEY FINDINGS, AND RECOMMENDATIONS

    1. The Securities Commission Malaysia (SC), as the supervisor of the capital markets, has developed a robust supervisory framework that exhibits high levels of implementation of the International Organization of Securities Commissions Objectives and Principles of Securities Regulation (IOSCO Principles) in most areas. The regimes governing the regulation of issuers, auditors, collective investment schemes, market intermediaries and secondary markets, and with respect to enforcement, co-operation and information sharing, are extensive.

    2. There are, however, some areas where enhancements are advisable. The SCs independence would be buttressed by some changes to the legal provisions on removal of commission members and to protections given to the members of the Commission and to its staff. The disclosure deadlines for issuers and their substantial shareholders should be adjusted to reflect international best practices. The new frameworks for oversight of credit rating agencies (CRAs) and the Federation of Investment Managers Malaysia (FIMM) should be implemented in full by carrying out on-site inspections as presently planned. 1 At this stage in the jurisdictions development, consideration should also be given to putting in place the pre-conditions that will enable the SC to ease up gradually on the intensity of its direct involvement in the day-to-day operations of the capital market and its participants.

    A. Introduction

    3. The assessment was conducted during the IMF/World Bank Financial Sector Assessment Program (FSAP) mission to Malaysia during the period April 4 to 20, 2012, by Tanis MacLaren, an external technical expert employed for this purpose by the IMF.

    4. The assessment was carried out using the 2011 IOSCO Methodology for Assessing Implementation of the IOSCO Principles (the Assessment Methodology). The Assessment Methodology was published in final form by IOSCO in 2011 and superseded an earlier version published in 2003. The final version of this revised Assessment Methodology is expected to be endorsed at the IOSCO annual meeting in 2012. In using the Assessment Methodology, the assessor sought to focus o