Contents
Overview
Introduction
Objectives
1.0 Overview of Law
1.1 The Law in Malaysia
1.2 The Legislative Process
1.3 The Common Law
1.4 Why does the Securities Industry have Specific Laws?
1.5 Sources of Current Securities Industry Law
2.0 The Securities Industry Laws
2.1 Securities Commission Act 1993
2.2 Capital Markets and Services Act 2007
2.3 Securities Industry (Central Depositories) Act 1991
2.4 Regulations
2.5 Securities Commission Guidelines Affecting Fund Management Companies
3.0 Other Relevant Laws and Regulations
3.1 Trustee Act 1949
3.2 Taxation Laws
3.3 Labuan International Offshore Financial Centre and Other
Jurisdictions
4.0 Organisations Regulating the Fund Management Industry
4.1 Government Regulators
4.2 Role of Self-Regulatory Organisations
4.3 Industry Associations
5.0 Industry Regulation
5.1 Investment Market Rules
5.2 Malaysian Association of Asset Managers
6.0 In Summary
Suggested Answers to Activities
Overview
Introduction
This topic is a brief introduction to the laws and to the various organisations that regulate the fund management industry in Malaysia and the securities markets in which fund management companies invest. We begin by looking at the different types of law in Malaysia, some of the terms used, and the legislative process.
We go on to look at why the securities industry needs its own laws, at the legislation relevant to the securities industry generally, and at other legislation that impacts upon the activities of fund management companies. We then review the bodies which are particularly relevant to the regulation of the funds management industry, including the frontline and other self-regulatory organisations, and their activities.
The purpose of this topic is to give you background information on the regulation of the fund management industry and the key regulators. This gives you a good starting point to build upon as you continue with the course.
Objectives
At the end of this topic you should be able to:
• distinguish between an Act of Parliament, an enactment of a State assembly and regulations and rules
• describe the common law
• explain why the common law of England is not uniformly applied throughout Malaysia
• explain why the securities industry has its own laws
• identify the three ‘securities laws’ and list the key elements of each
• list the functions of the Securities Commission
• define ‘securities’ under the CMSA
• describe the purpose of the regulations and of Guidelines issued by the Securities Commission
• describe the regulatory structure of the fund management industry in Malaysia
• list the major regulatory bodies and other organisations that have an impact on the activities of the funds management industry in Malaysia.
• identify other laws and sources of regulation of which a holder of CMSL who carries on the business of fund management should be aware.
Objective of Law
(1) The Law in Malaysia
The main sources of Malaysian law are as follows:
• The Federal Constitution establishes a constitutional monarchy and a federal system of government. The parliament functions under this written constitution and is governed by it. Constitutional provisions limit the Malaysian Parliaments law-making powers but parliament can amend the constitution by a two-thirds majority vote of both chambers of parliament, the House of Representatives and the Senate.
• The 13 Constitutions of the States comprising the federation. All 13 States comprising the federation have individual constitutions which provide for a single chamber Legislative Assembly in each State.
• Federal laws made by parliament.
• State laws made by State assemblies.
• Federal and state subsidiary legislation, also known as subordinate legislation or delegated legislation. This is made up of rules and regulations enacted by an authority under powers conferred on it by a statute. Rules and regulations are as much law as the statute under which they are made. They cannot govern matters further than those covered by the legislation which created them, however, and they are always read subject to the relevant legislation.
• Common law.
• Principles of English law suitable to local circumstances. A consequence of British colonial rule was the spread of English law into those areas ruled by the British. Malaysia adopted English law so far as it was suitable to local conditions. In some instances English law was adopted indirectly because it was applied by the judiciary to cases that came before them. In other instances there was statutory authority for the introduction of English taw that was suitable to local conditions in the absence of local laws, e.g. Royal Charters of Justice.
In Peninsular Malaysia, the courts apply the common law of England and the rules of equity, as administered in England on 7 April 1956. In Sabah, they apply the ‘common law of England and the rules of equity, together with statutes of general application’, as administered or in force in England on 1 December 1951. In Sarawak it is the same as in Sabah, but the date is 12 December 1949.
In the application of English Legal principles to commercial transactions where there is no local law, English law as it stood on 7 April 1956 is received in the nine former Malay States. In Penang, Malacca, Sabah and Sarawak, English commercial law at the corresponding period is received. This means that in those four States which were former colonies, there is a continuing reception of English commercial law in the absence of local legislation.
The dates of reception that are specified are important as later changes in English law are not automatically received. After that specified date it has been up to the colonies or the Malay States to develop or change the inherited law as they saw fit. There are now an increasing number of local laws dealing with commercial transactions, with a corresponding decrease in dependence on English law.
• Islamic Law, applicable only to Muslims and administered in the Shariah Courts. The power to administer Islamic law is primarily that of the States, except for the federal territories of Kuala Lumpur and Labuan.
(2) The Legislative Process
Legislation refers to laws made by a person or body which has the power to make law. In Malaysia, both parliament and the Legislative Assemblies of each State possess authority to enact laws in their respective areas. Laws made by the parliament may apply throughout the country or even extra-
territorially, but laws enacted by the States can only apply to that State. A federal law is referred to as an act. A State law is called an enactment, except in Sarawak where it is called an ordinance.
(3) The Common Law
Common law, as opposed to statute law enacted by the legislature, is judge-made law or precedent. A binding precedent is a judgement, or a decision of a court of law, cited as an authority for deciding a similar set of facts; a case which serves as an authority for the legal principle embodied in its decision. A court is bound by decisions of a superior court where the superior court had decided a case in the same area of law and on similar facts. While this technique may be English in origin, the resulting common law is naturally Malaysian, although principles of English law may have found their way into the precedent established by the courts.
In relation to the activities of fund management companies there are two aspects of the common law that are particularly relevant — contract law and the law of torts. We examine each of these important areas in detail in later topics. We will also apply the principles we have learned to our study of the relationship between a fund management company and its client.
Activity 1: List eight of the main sources of Malaysian Law.
Answer:
The Federal Constitution
The 13 State Constitutions
Federal Laws made by parliament
State laws made by state assemblies
Federal ad state subsidiary legislation (subordinate or delegated
legislation)
Common law
Principles of English law suitable to Malaysian circumstances
Islamic Law
(4) Why does the Securities Industry have Specific Laws?
The first objective of securities regulation is to establish a capital market in which investors can have confidence.
The functions of regulation are:
(a) to define the key features of the financial system and the role of the securities market institutions, including the development of new types of market activities
(b) to steer market participants towards the adoption of best practices
(c) to create disincentives against behaviour that would be detrimental to the market.
The objectives pursued by regulators are, therefore, market integrity, fairness, and efficiency. Thus, a large part of securities regulation is directed at disclosing information, keeping markets informed and ensuring fair trading on financial markets. It is also concerned with the definition and maintenance of appropriate standards of conduct by participants, including those involved in the funds management industry. These objectives help to give the public confidence in the market. Ensuring full and fair disclosure of information helps protect those investing, or proposing to invest, in securities.
The Mission Statement of the SC, Malaysia’s securities regulator, formed to address the needs of capital markets, provides a good summary of the issues which underlie the regulation of the securities industry.
“To promote and maintain fair, efficient, secure and transparent securities and derivatives markets and to facilitate the orderly development of an innovative and competitive capital market.”
(5) Sources of Current Securities Industry Law
The legislations which affect the securities industry and holders of a CMSL who carry on the business of fund management are as follows:
(a) Securities Commission Act 1993
(b) Capital Markets Et Services Act 2007
(c) Securities Industry (Central Depositories) Act 1991
(d) Companies Act 1965
Later in this topic we look in detail at the bodies which are established by or administer these acts and which are responsible for he supervision and management of the securities industry.
Apart from the legislation noted above, there are other acts which may affect the operation of companies and securities transactions. Some of these acts are:
(a) Income Tax Act 1967 – relevant to a company’s decision to list and a fund management company’s decision to invest in shares and other securities.
(b) Stamp Act 1949 – relevant as contract notes require the payment of duty of RM3.00 for every RM1,000 or fractional part of RM1,000 on the price or value of securities, which is the greater.
The Securities Industry Laws
Funds management companies and their employees are also subject to specific securities industry laws. In this section we will briefly examine each of these.
(1) Securities Commission Act 1993
The regulation of the securities industry is the responsibility of the Securities Commission (SC) under the Securities Commission Act (SCA).
Section 15(1) of the SCA lists the functions of the SC as follows:
• to advise the Minister on all matters relating to securities and derivatives industries
• to regulate all matters relating to securities and derivatives
• to ensure that the provisions of the securities laws are complied with
• to regulate the take-over and mergers of companies
• to promote and regulate all matters relating to fund management, including unit trust schemes
• to be responsible for supervising and monitoring the activities of any exchange holding company, 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 participating organisations, participants, affiliates, depository participants and all licensed or registered persons of an exchange, clearing house and central depository, as the case may be
• to suppress illegal, dishonourable and improper practices in dealings in securities and dealing in derivatives, and the provision of investment advice or other services relating to securities or derivatives
• to consider and make recommendations for the reform of the law relating to securities and derivatives
• 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
ssociations or market bodies in the securities and derivatives industries
• to license, register, authorise and supervise all persons engaging in regulated activities or providing capital market services as may be provided for under any securities law
• to promote and maintain the integrity of all licensed persons in the securities and derivatives industries.
• to register or recognise all auditors of public interest entities for the purposes of this Act, and to promote and develop an effective audit oversight framework in Malaysia
• to take all reasonable measures to monitor, mitigate and manage systemic risks arising from the securities and derivatives markets
• o promote and regulate corporate governance and approved accounting standard of listed companies
• to set and approve standards for professional qualification for the securities and derivatives markets
The SCA prescribes how the SC shall operate — including its various powers (particularly its powers of enforcement and investigation through appointed Investigating Officers) and its finances.
Question/Activity 2: Read s. 23 – 24 of the SCA. How is the SC funded?
Answer:
The SC is financed through a Fund. Under the SCA, the fund may be derived from borrowings, levies and fees charged and collected by the SC. In practice the bulk of the SC’s funding is currently derived from levies imposed upon purchases and sales of securities on Bursa Malaysia Securities Berhad. Interest on the accumulated amount of the Fund also represents a significant source a the SC’s income.
(2) Capital Markets and Services Act 2007
The preamble to the Capital Markets and Services Act 2007 (CMSA) states that it is:
“an Act to consolidate the Securities Industry Act 1983 [Act 2801 and Futures Industry Act 1993 (Act 499], to regulate and provide for matters relating to activities, markets and intermediaries in the capital markets and for, matters consequential and incidental thereto”
The CMSA is important because, among others, it provides a definition of securities and then prescribes how these securities may be traded. Securities are defined as:
“debentures, stocks or bonds issued or proposed to be issued by any government; shares in or debentures of, a body corporate or an unincorporated body; or units in a unit trust scheme or prescribed investments, and includes any right, option or interest in respect thereof”
Of particular relevance to holders of a CMSL who carry on the business of fund management and their representatives are Divisions 1 and 2 of Part III covering licensing and regulation of licence holders and register of securities that licence holders are required to keep. Division 3 of Part III covers conduct of business by licensed persons. Division 4 of Part III describes the books. Client’s assets protection and audit requirement while Division 1 and 2 of Part V describes various market misconducts and other prohibited misconducts.
(3) Securities Industry (Central Depositories) Act 1991
The Securities Industry (Central Depositories) Act (SICDA) covers the operation of the Bursa Malaysia Securities Berhad’s scripless settlement system implemented through Bursa Malaysia Depository Sdn Bhd.
(4) Regulations
Section 159 of the SCA empowers the SC to make (with the approval of the Minister of Finance) such regulations as may be expedient or necessary for the better carrying out of the provisions of this Act’. This allows the SC some flexibility within the law since it is an involved process to change laws as circumstance and market conditions change.
Similar provisions are made in the CMSA, with s.378 conferring the SC (with the approval of the Minister of Finance) the power to make regulations as may be required or permitted by securities law to be prescribed by regulations; or prescribe regulations necessary or expedient for giving full effect to the provisions of the CMSA; carrying out or achieving the objects and purposes of the CMSA; or the further, better or more convenient implementation of the provisions of the CMSA.
Securities Commission Guidelines Affecting Fund Management Companies
To assist in the interpretation of the securities industry laws and regulations, the SC issues numerous Guidelines for the benefit of securities industry participants. In this section we provide a list of those that are particularly relevant to the fund management industry.
• Licensing Handbook
• Guidelines on Compliance Function for Fund Management Companies
• Guidelines on Unit Trust Funds
• Guidelines on Public Offerings of Securities of Closed-end Funds
• Guidelines for the Establishment of Foreign Fund Management CompaRies
• Guidelines on Prevention Of Money Laundering and Terrorism Financing for Capital Market Intermediaries
• Guidelines on Wholesale Funds
• Guidelines on Exchange-Traded Funds
• Guidelines on Islamic Fund Management
• Guidelines on Outsourcing for Capital Market Intermediaries
The list should provide you with an insight into various aspects of the fund management business which are subject to more detailed requirements than might be expected from a reading of the securities industry law and regulations.
Some of the guidelines listed will be examined in greater detail in subsequent topics.
Other Relevant Laws and Regulations
A number of other laws and regulations affect the fund management industry. In this section we will briefly examine:
• the Trustee Act 1949
• Companies Act 1965
• the laws relating to foreign portfolio investments
• taxation laws
• the Labuan International Offshore Financial Centre.
(a) Trustee Act 1949
A trust is formed where a person (the settlor) transfers property to another person (the trustee) with the instruction that it be held for the benefit of a third person (the beneficiary). There are a large number of situations in which a trust is formed. A fund management company may be appointed by the trustees of a trust to manage the investments of the trust. While fund management companies will generally be given a mandate in relation to the investments held in the trust, the Trustee Act describes the investments (the ‘authorised investments’) in which a trustee to which the Act applies can invest, the trustee’s investment powers, and the duty of trustees in choosing investments. Fund management companies and their representatives are responsible for the management of private client portfolios should take particular note of the requirements under the Trustee Act.
(b) Taxation Laws
A review of the taxation law relating to investments lies outside the scope of this course. However, the taxation impact on investment decisions made by fund management companies is clearly significant given that investment mandates commonly incorporate an objective described in terms of after tax returns. It should also be noted that clients of a fund management company will each have their own unique taxation obligations — for example, a unit trust is subject to taxation on its profits, a charitable foundation would not be subject to tax. Similarly, a particular client of a fund management company may not have a taxation liability in a particular tax year because of tax losses.
(c) Labuan International Offshore Financial Centre and Other Jurisdictions
A detailed review of the laws and regulations applicable to the Labuan International Offshore Financial Centre (l0FC) lies outside the scope of this course. Labuan has its own laws and fund management companies acting on behalf of clients based in Labuan — and in any other jurisdiction — should be familiar with the legal and regulatory obligations applicable.
The Labuan Financial Services Authority (LOFSA) was established in 1996 to act as z single regulatory agency to supervise the offshore industry and promote the growth and development of the lOFC. LOFSA is responsible for setting objectives, policies and priorities for the orderly development and administration of the lOFC.
Relevant to the funds management industry is LOFSA’s objective of developing funds management services, including the provision of offshore Islamic instruments New laws are continuously promulgated and existing legislation amended. For example, the following are among the laws regulated by LOFSA.
(a) Labuan Companies Act 1990 — provide for the incorporation, registration and administration of Labuan companies and foreign Labuan companies and for matters connected therewith.
(b) Labuan Financial Services a Securities Act 2010 – provide for the licensing and regulation of financial services and securities in Labuan, the establishment of an exchange and for other matters related thereto
(c) Labuan Business Activity Tax Act 1990 — provide for the imposition, assessment and collection of tax on a Labuan business activity carried on by a Labuan entity in or from Labuan and for matters connected therewith.
(d) Labuan Limited Partnerships and Limited Liability Partnerships Act 2010 – provide for the establishment, regulation and dissolution of Labuan limited partnerships and Labuan Limited Liability Partnerships for matters connected therewith or incidental thereto.
(e) Labuan Trust Act 1996 — provide for the creation and recognition of Labuan trusts and for matters connected therewith and incidental thereto.
Organisations Regulating the Fund Management Industry
Government Regulators
The Securities Commission
The most significant regulatory body affecting the securities industry and funds managers is the SC. The SC was established under the SCA and began its operations on 1 March 1993. The SC’s Mission Statement is:
“To promote and maintain fair, efficient, secure and transparent securities and derivatives markets and to facilitate the orderly development of an innovative and competitive capital market”.
The SC’s role, therefore, is to encourage and to promote a strong and healthy securities market to ensure the orderly development of the capital market. At the same time it aims to maintain the confidence of investors by ensuring adequate protection for them, in line with the provisions of the SCA and the CMSA.
We will examine some of the methods (regulations) used by the SC to control the activities of fund management companies, ie, holders of a CMSL who carry on the business of fund management — and others — in subsequent topics.
Bank Negara Malaysia
The central bank, Bank Negara Malaysia (BNM), was set up in 1959. It acts as the licensing and regulatory body over banks and other financial institutions, and provides the stimulus for the expansion and growth of the country’s financial sector.
Under the BAFIA (Banking and Financial Institutions Act 1989), BNM approval is required to incorporate a subsidiary of a licensed financial institution, such as an asset management company.
BNM is also responsible for the foreign exchange administration policy and regulates the insurance industry. It controls the internal investment portfolios of insurance companies by restricting the asset classes within which investments may be made.
Although the SC governs the primary market of corporate bonds, the secondary trading of bonds is under the purview of Bank Negara Malaysia, and all bonds must be rated by MARC (Malaysian Rating Corp Berhad) or RAM (Rating Agency Malaysia).
The Companies Commission of Malaysia
The Companies Commission of Malaysia (CCM) was established under the Companies Commission of Malaysia Act 2001 which came into force on 16 April 2002.
Under the new set up, the functions of the Registrar of Companies and the Registrar of Businesses in Malaysia are now under the purview of the CCM. The CCM will administer and enforce the following legislation:
(i) Companies Act 1965
(ii) Trust Companies Act 1949
(iii) Kootu Funds (Prohibition) Act 1971
(iv) Registration of Businesses Act 1956
(v) Any subsidiary legislation made under the above Acts.
The powers of the CCM would therefore include powers previously held by the Registrar of companies which are among others, to:
(a) enforce the filing or lodging with the CCM of accounts or other documents
(b) register companies by registering the memorandum and articles, and issue certificates of incorporation
(c) register prospectuses and/or grant relief from the prospectus requirements of the CA
(d) take proceedings for any offence against the CA.
Role of Self-Regulatory Organisations
In Malaysia, the SC is promoting the principle of self-regulation. The CMSA, through Part VIII, provides or the recognition of self-regulatory organisations in the Malaysian capital market. This means that participants in the securities industry — such as fund management companies — are, among others, to be responsible for monitoring the activities of their members and to promote investor protection, compliance of the securities laws and promote appropriate standard of conduct. Government involvement in regulation is, in the long term, to be minimised.
An example of a self-regulatory organisation in the Malaysian capital market is Federation of Investment Managers Malaysia.
Federation of Investment Managers Malaysia (FIMM)
FIMM started as the Federation of Malaysian Unite Trust Managers in 1993 and was recognised by the SC as a self-regulatory organization for the unit trust industry in 2011.
The objective of FIMM are to:
(a) improve the regulatory, fiscal and legal environment for unit trusts
(b) formulate sound and ethical business practices to promote the interest
of the unit trust industry and provide investor protection
(c) provide information, assistance and other services to its member
(d) promote public awareness of the benefits and risks of investing in unit trusts.
Why has the Malaysian Government taken this view?
The advantages of self-regulation are said to be as follows:
(a) self-regulation allows market participants to respond to the real demands of participants
(b) self-regulatory organisations are frequently the best source of innovation in market practices and institutions
(c) self-regulatory organisations can act quickly and decisively when an anomaly arises in the market.
However, there are potential disadvantages of self-regulation
(a) a self-regulatory body may sacrifice market integrity for short term gain when the interest of members and new clients come into conflict
(b) self-regulatory organisations sometimes act like guilds that only promote the vested interests of their members
(c) self-regulatory organisations may be anti-competitive.
Consequently, the regulatory structure in Malaysia currently occupies a position somewhere between the extremes of direct government regulation and self-regulation.
The SC holds ultimate responsibility for the fair and effective operation of securities markets. As provided under s.15 of the SCA, it has to ensure securities laws are complied with:
(a)supervise and monitor activities of any exchange holding company, exchange, clearing house and central depository
(b) promote and encourage proper conduct amongst participating organisations, participants, affiliates, depository participants and all licensed or registered persons of an exchange, clearing house and central depository, as the case may be.
(c) suppress illegal, dishonourable and improper practices.
In fulfilling its responsibilities the SC seeks to appoint what it refers to as frontline regulatory organisations.
The frontline regulatory organisation regulated by the SC are as follows:
• Bursa Malaysia Securities Berhad
• Bursa Malaysia Depository Sdn Bhd
• Bursa Malaysia Securities Clearing Sdn Bhd
• Bursa Malaysia Derivatives Berhad
• Bursa Malaysia Derivatives Clearing Bhd
Other organisations in the securities industry may become self-regulatory organisations when the SC believes that they have reached the necessary level of skills, resources and maturity.
As mentioned, the CMSA makes provisions for self-regulatory organisations in Part VIII. Section 323 stipulates the criteria for recognition of self-regulatory organisations, which among others require that the organisation fulfils the following:
(a) It is fit and proper and satisfies the criteria or standard referred to in s.64 and s.65, or any rules of the stock exchange or derivatives exchange
(b) it has sufficient financial, human and other resources to carry out its functions
(c) it is able to take appropriate action against its members and any person to whom the rules apply
The SC approves the rules of the self-regulatory organisations. Amendments made are also reviewed to ensure that investor protection and public interest are not compromised.
Industry Associations
Industry associations have an important role to play in controlling the activities of their members. The SC foresees that industry associations may at some stage become self-regulatory rganisations in relation to the regulation of the activities of their members.
In this section we will look briefly at two associations that regulate different aspects of the fund management industry:
(b) Malaysian Association of Asset Managers
Malaysian Association of Asset Managers (MAAM) was formed in November 1996 to promote the development of the fund management industry in Malaysia, and to assist communication between fund management companies, regulators and the investing public.
The objects of the MAAM are:
• to act as the representative body for its members and the asset management industry in Malaysia
• to promote the asset management industry in Malaysia and to ensure the provision of a high standard of service to investors
• to make representations to the Government, any regulatory authority or any other person about any matters affecting the asset management industry in Malaysia
• to consider, promote, review and make recommendations on legislative or other measures affecting the asset management industry in Malaysia
• to promulgate standards of practice for the asset management industry in Malaysia
• to promote proper conduct among asset managers in Malaysia
• to promote research, training and education in connection with the asset management industry
• to collect and disseminate statistical and other information relating to the asset management industry in Malaysia and elsewhere.
Membership is open to the holder of a CMSL who carries on the business of fund management.
The Committee of MAAM may in its absolute discretion terminate membership if the member does any act or omits to do any act in breach of the Societies Act 1966, the CA, the CMSA, or any other legislation which regulates the asset management industry. Membership may also be terminated if the licence of the holder of a CMSL who carries on the business of fund management is revoked or suspended or becomes non-current for any reason.
(b) Association of Trust Companies Malaysia
The Association of Trust Companies Malaysia (ATCM), formed in 1996, represents the trustee companies who play an important role in the operation of unit trusts as well as in their role as custodians to other investment pools such as pension funds.
Industry Regulation
In addition to obligations imposed by law, fund management companies, ie. Holders of a CMSL who carry on the business of fund management and their representatives (holders of a Capital Markets Services Representative’s Licence (CMSL) who carry on the regulated activity of fund management) are subject to regulation several other parties.
(a) Investment Market Rules
Fund management companies transact business on a number of investment markets each of which has its own rules, regulations and market practices. Transactions on the Bursa Malaysia Securities Berhad are subject to the Rules of the Bursa Malaysia Securities Berhad and its related entities — the central depository (Bursa Malaysia Depository Sdn Bhd) and the central clearing house (Bursa Malaysia Securities Clearing Sdn Bhd). Transactions involving derivatives are traded in accordance with the Rules of Bursa Malaysia Derivatives Berhad.
While a detailed knowledge of the requirements of the investment markets upon which fund management companies trade on behalf of their clients is outside the scope of this course, you should be aware that the proper working of the various exchanges requires all the participants (including fund management companies and their representatives) to be fully aware of their obligations.
(b) Malaysian Association of Asset Managers
Ethical statements (also known as Codes of Conduct) are commonly developed by industry associations, such as Malaysian Association of Asset Managers to provide a basis for guiding members behaviour. Most industry organisations also devise more detailed rules and guidance statements for members covering specific aspects of business conduct.
We will examine in detail several aspects of the conduct of a fund management business in a later topic. We will also review the ethical constraints within which a fund management company and its representatives should work.
Question/Activity 3
Excluding securities industry laws, list three other laws and regulations of which a fund management company should be aware when managing funds on behalf of investors.
Answer:
A fund management company should be aware of the potential impact of the following:
• the Trustee Act 1949 where the funds represent trust monies
• the Taxation laws
• the laws of other jurisdictions, such as the Labuan 10FC
In Summary
This topic introduced you to the law and to the organisations involved in the regulation of the fund management industry in Malaysia. We took a bird’s-eye view of the law and the legislative process in Malaysia. We looked briefly at the sources of securities law and the roles of the major government regulatory bodies and self-regulatory bodies that inspect the operations and activities of the fund management industry. We have also seen how the SC is provides guidance in its interpretation of these laws to the fund management companies and their representatives through the issue of guidelines. Lastly we looked at a range of other laws and regulations with which participants in the funds management industry must be familiar with in order to properly fulfill their obligations.
In the next topic we will look at the law of contract which is relevant to the relationship between fund management companies and their clients.
Suggested Answers to Activities
Question 1
List eight of the main sources of Malaysian Law.
Answer:
• the Federal Constitution
• the 13 State Constitutions
• Federal laws made by parliament
• State laws made by state assemblies
• Federal and State subsidiary legislation (subordinate or delegated legislation)
• Common Law
• principles of English law suitable to Malaysian circumstances
• Islamic Law.
Question 2
Read s. 23 – 24 of the SCA. How is the SC funded?
Answer:
The SC is financed through a Fund. Under the SCA, the fund may be derived from borrowings, levies and fees charged and collected by the SC. In practice the bulk of the SC’s funding is currently derived from levies imposed upon purchases and sales of securities on Bursa Malaysia Securities Berhad. Interest on the accumulated amount of the Fund also represents a significant source a the SC’s income.
Question 3
Excluding securities industry laws, list three other laws and regulations of which a management company should be aware when managing funds on behalf of investor.
Answer
A fund management company should be aware of the potential impact of the following:
• the Trustee Act 1949 where the funds represent trust monies
• the Taxation laws
• the laws of other jurisdictions, such as the Labuan 10FC