Licensing of Persons Who Carry on the Business of Investment Advice, Advising on Corporate Finance and Their Representatives

Licensing of Persons who carry on the business of investment advice, advising on corporate finance and their representatives.
Intermediaries such as persons who carry on the business of investment advice, fund management, dealing in securities and their representatives are tthe link between the investors and the capital market. Intermediaries are expected to attain the highest standard of professionalism and participate in the market with integrity, efficiency and honesty in order to safeguard the investors’ interests.
Source of references: Guidelines on Conduct for Capital Market Intermediaries

What are financial intermediaries? Their role in capital markets

An institution or an individual that acts as a link between the parties of a financial transaction is known as a financial intermediary. A mutual fund, investment bank, commercial bank, or pension fund are examples of financial intermediaries. Usually, in debt markets, one of the two parties involved is a lender and the other is a borrower. In equity markets, however, companies don’t lend money or shares to the other party. The shares are purchased and the companies are not obligated to repay the invested amount, thus introducing a certain risk factor…Read more 

Investment advice, Advising on corporate finance (CMSL) and Capital Market Services Representatives Licence (CMSL) defined.
In general, INVESTMENT ADVICE which is a regulated activity under the CMSA, is defined in Part 2 of Schedule 2 of the CMSA as carrying on a business of advising others concerning securities or as part of a business, issues or promulgates, analyses or reports concerning securities or futures contracts.
“Advising on corporate finance”. also a regulated activity under the CMSA, is defined in Part 2 of Schedule 2 of the CMSA as giving advice concerning:
(a) compliance with or in respect of Part VI, any regulation made under section 378 and any guidelines issued under section 377 relating to any matter provided under Part VI, or relating to the raising of funds by any corporation,
(b) compliance with the listing requirements of the stock exchange in relation to the raising of funds or related party transactions.
(c) arrangement or restructuring of a listed corporation or a subsidiary of the listed corporation of its assets or liabilities.
Both, the “Capital Markets Services License (CMSL)” and “Capital Markets Services Representative’s Licence (CMSRL)” are defined in section 2 of the CMSA as a licence that is granted and renew under section 61.
“Securities” is defined in section 2 of the CMSA as debentures, stocks or bonds of any government, shares in or debentures of a body corporate or unincorporated body or unit trusts or prescribed investments and includes any right option or interest in respect thereof but does not include futures contracts.
“Futures contract” is defined in section 2 of the CMSA as an agreement that is, or has at any time been, an eligible delivery agreement or adjustment agreement, a futures option, an eligible exchange-traded option or any other agreement or any other agreement in a class of agreements prescribed to be futures contracts under section 5.
Reference: CMSA 2007 (ACT 671)

Requirement to be licensed
Pursuant to section 58 of the CMSA, a person cannot whether as a principal or agent, carry on a business in any regulated activity or hold himself out as carrying on such business unless he is the holder of a CMSL or is a registered person. It follows in section 59 of the CMSA that a person cannot act as a representative in respect to any regulated activities or hold himself out as doing so unless:
(a) he is the holder of a Capital Market Services Representative’s Licence (CMSRL) for that regulated activity; or
(b) is a registered person with respect to that regulated activity.
The application for a CMSL to carry on a business in any regulated activity may be made in the prescribed form and manner stipulated in section 60 of the CMSA.

Criteria for the grant of licence
Conditions for a Capital Markets Services Licence for carrying on a business in any regulated activity.
A person applying for a licence must be a fit and proper person to hold the licence. In determining the fit and proper status, the SC will take into consideration, as set out in the sections 64 and 65 of the CMSA, the following:
(a) solvency and financial standing:
(b) ability and readiness of the person to carry on the regulated activities he is proposing to do competently, efficiently, honestly and fairly.
(c) educational or professional background, experience and track record of the person having regard to the nature of duties that the person would be performing; and
(d) probity, reputation, character, integrity and reliability.
Section 64(1)(k) of the CMSA provides that the SC will also look into previous conduct and activities in business or financial matters of the person in question.
Refer to the licensing Handbook for the general requirements in applying for a CMSL or a CMSRL for carrying on the business of investment advice for securities or futures contracts or advising on corporate finance.

Revocation and suspension of licence
Under section 72 of the CMSA, the SC can revoke and suspend a licence under the following condition.
(a) Revocation
A licence will be deemed revoked (section 72(1)):
(a) in the case of a holder of a CMSL, if the licensed holder is wound up or otherwise dissolved, whether within or outside Malaysia or,
(b) in the case of a holder of a CMSL, if the representative dies.
While the above represents the situation whereby the licence will automatically revoked, section 72(2) governs situation where the SC has the authority to revoke the CMSL or CMSRL.
In the case for the CMSL, the SC may revoke the licence )other than the CMSL for the business of dealing in securities or trading in futures contracts where the licence may only be revoked with the concurrence of the Minister) if:
There exists a ground on which the SC may refuse an application under subsection 64(1);
(i) the holder fails or cease to carry on the business in all or any of the regulated activities for which it was licensed for a consecutive period of three months;
(ii) the holder contravenes any condition or restriction applicable in respect of its licence or any directions issued by the SC under the CMSA.
(iii) the holder contravenes any of the rules of a stock exchange, futures exchange, approval clearing house or central depository which is binding upon it.
As for a CMSRL, the SC may revoke the licence (other that the CMSRL for the business of dealing in securities or trading in futures contracts where the licence may only be revoked with the concurrence of the Minister) under these circumstances if:
(i) there exists a ground on which the SC may refuse an application under subsection 65(1).
(ii) he fails or ceases to act as a representative in respect of all or any of the regulated activities for which he was licensed
(iii) the licence of his principal is revoked
(iv) the holder contravenes any condition or restriction in respect of his licence or any direction issued by the SC under the CMSA.
The SC shall not revoke or suspend a license without first giving the licensed person an opportunity to be heard (section 72(4) of the CMSA).

(b) Appeal
Under section 72(4) of the CMSA the SC shall not revoke or suspend a licence without first giving the licensed person an opportunity to be heard.
A licensed person who is aggrieved by a decision of the SC under section 72 may appeal to the minister of Finance within 4 days from the notification of the decision of the SC – section 80(1) of the CMSA. The Minister may then either affirm the decision made by the SC, set aside the decision made by the SC or set aside the decision made by the SC and make a decision in substitution for that decision – section 80(4) of the CMSA. The decision of the Minister shall be final – section 80(1) of the CMSA.

Duties and obligation of license holder
(a) Notification
It is the duty of CMSL or CMSRL holder to notify the SC of any disqualifying event. Disqualifying events are those under section 72 of the CMSA and those listed above in paragraph 3.4(a). In addition, a licensed holder must notify the SC, pursuant to section 78, changes in particulars where:
(i) the holder of a CMSL ceases to carry on the business to which the license relate;
(ii) the holder of a CMSRL ceases to be a representative of the CMSL in relation to whom the CMSRL was issued and the licence has not been varied under section 69 of the CMSA;
(iii) a change occurs in any information required to be entered in the register of licence holders under section 77; or
(iv) a change occurs in the information submitted to the Commission in accordance with subsection 60(1) or (3).
When any of the events mentioned above occurs, the holder of the license shall give notice to the SC in the specified form, particulars in writing not later than 14 days after the occurrence of the event concerned.

(b) Register of securities
Section 83 of CMSA provides that the following persons (as set out in section 82(1) must maintain a register of securities in which he has an interest:_
(i) a licensed person who carries on the business of dealing in securities
(ii) a licensed person who carries on the business of fund management
(iii) a licensed person who carries on the business of advising on corporate finance.
(iv) a licensed person who carries on the business of investment advice;
(ii) a licensed person who carries on the business of financial planning;
(vi) a financial journalist; or
(vii) an authorised depository agent appointed under section 13 of the Securities ((Central Depository) Act 1991.

Self-assessment:
Question 1:
What are the requirements that the Securities Commission of Malaysia will take into consideration when determining the fit and proper status of an application for a CMSRL?
Answers:
1. Solvency and financial standing
2. Ability and readiness of the person to carry on the regulated activities he is proposing to do competently, efficiently, honestly and fairly.
3. Probity, reputation, character, integrity and reliability.
4. Educational or professional background, experience and track record of the person having regard to the nature of duties that the person would be performing.

Question 2:
Under which of the following circumstances can the Security Commission Malaysia (SC) revoke the CMSRL for advising on corporate finance?
I. The license of his principal is revoked
II. The SC is of the opinion that it would be contrary to the interests of the public for the CMSRL to continue to hold the licence.
III. He fails or ceases to act as a representative in respect of all or any of the regulated activities for which he was licensed.
IV. The holder contravenes any condition or restriction in respect of his license or any directions issued by the SC under the CMSA.
A. I and II only
B. III and IV only
C. I, II, III only
D. All of the above

Read more…
Module Outlines – Contractual Issues –Negligent Misstatement – Licensing of Persons Who Carry On The Business Of Investment Advice, Advising On Corporate Finance And Their Representatives –Prohibited Conduct And Insider Trading –Conclusion.

Equity Guidelines

CHAPTER 5 : EQUITY OFFERINGS AND LISTINGS
CHAPTER 6 : SPECIAL PURPOSE ACQUISITION COMPANY