This topic is designed as a reference on the rules and regulations governing advisory services in the Malaysian capital market. Examination candidates should review the notes for the Module 19 (SIDC – Advisory services) and complete the self-assessment questions and answers in the topics.

Objectives
Learners are expected to have good knowledge, understanding and ability to apply in the following areas:
• The principles of contract law and relevant issues
• The laws which are relevant to the advisory services in the Malaysian capital market
• The system and procedures of licensing of persons who carry on the investment advisory business in Malaysia
• The features and prohibitions of investment advisory activities
• The regulations governing the issue and offer of equity securities, listing of corporations and quotations of securities on the Main Market of Bursa Malaysia Securities Berhad (Bursa Securities) (Main Market) and proposals which result in a significant change in the business direction or policy of corporations listed on the Main Market under the Securities Commission Malaysia’s Equity Guidelines
• The regulations setting out who can act as principal advisers for the submission of corporate proposals and the competency standards required
• The regulations governing the conduct of due diligence for corporate proposals by issuers, advisers and experts
• The activities and current trends connected to money laundering and terrorism financing and the Malaysian regulatory approach towards them
• The characteristics and regulations governing take-overs in Malaysia
• The regulations governing valuations of property assets in conjunction with corporate proposals for submission to the Securities Commission Malaysia or for inclusion in prospectuses and circulars
• The regulations governing the issuance and registration of prospectuses
• The regulations governing the issue, subscription, purchase, invitation to subscribe or purchase corporate bonds or sukuk to retail investors
• The regulations that must be observed for the purposes of exclusively making available unlisted capital market products to sophisticated investors in Malaysia or persons outside Malaysia
• The regulations governing the issuers of structured warrants
• The regulations governing listing of securities under the Bursa Securities Main Market Listing Requirements, Bursa Malaysia Securities Berhad ACE Market Listing Requirements and Bursa Malaysia Securities Berhad LEAP Market Listing Requirement.

Outcomes
These define clearly what you should be able to do on the successful completion of each topic. You should read them carefully before you begin. On completion, check whether you have achieved the objectives.

Note:
Frequently asked question about CMSA 2007

What Is Contract Law?

Contract law is an area of law pertaining to legal agreements between individuals, businesses, and groups. A written and signed contract creates an obligation between two or more parties to do or not do particular things, such as an exchange of money for goods or services provided.
Contracts protect us in many ways and in many aspects of our lives, from employment contracts that spell out a job description and its salary to non-disclosure agreements that protect real and intellectual property…Read more

Content
3.1 Investment advice, Advising on corporate finance, Capital Market Services Licence (CMSL) and Capital Markets Services Representatives Licence (CMSRL) defined
3.2 Requirement to be licensed
3.3 Criteria for the grant of Licence
3.4 Revocation and suspension of licence
3.5 Duties and obligations of licence holder
Self-assessment/Questions and Answers

Intermediaries such as persons who carry on the business of investment advice, fund management, dealing in securities and their representatives are the 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.

3.1 Investment advice, Advising on corporate finance, Capital Market Services Licence (CMSL) and Capital Markets Services Representatives Licence (CMSRL) 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.
Capital Market Srvices Licence and Capital Markets Services Representative’s Licence are both defined in section 2 of the CMSA as a licence that is granted and renewed 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 contracts 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.

3.2 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 sections 59 of the CMSA that a person cannot act as a representative in respect of any regulated activity or hold himself out as doing so unless.
(a) he is the holder of a Capital Markets 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.

Note:
Frequently asked question about CMSA 2007
Frequently asked question about CMSL

The Licensing Process

Under the Capital Markets and Services Act 2007 (CMSA), anyone wishes to carry out capital market activities (unless a registered person) is required to be appropriately licensed. The Securities Commission Malaysia (SC) is the sole licensing authority that approves licences for capital market intermediaries to be engaged in the regulated activities.
Under the CMSA, capital market intermediaries (CMI) that are fit and proper is issued with one licence that will enable them to carry on one or more regulated activities.
The SC is entrusted with the responsibility of ensuring an efficient and transparent licensing process and that the licensed intermediaries and its representatives are competent and proficient in providing their services to the investors. Certified as an ISO 9001:2015 department, the SC’s Authorisation & Licensing Department undertakes the assessment of licence applications under its purview within the time frame stipulated in accordance with its ISO performance standards.
There are two main types of licensing applications, namely:
(a) New Capital Markets Services Licence (CMSL) – granted to a principal
(b) New Capital Markets Services Representative’s Licence (CMSRL) – granted to a representative to enable him to carry on any one or more regulated activities on behalf of his principal…Read more

3.3 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 account or consideration, as set out in the sections 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, honesty 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.

3.4 Revocation and suspension of licence
Under section 72 of the CMSA, the SC can revoke and suspend a licence under the following conditions.
(a) Revocation
A licence will be deemed revoked (section 72(1)):
(a) In the case of 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 CMSRL, if the representative dies.
While the above represents the situation whereby the license will be automatically revoked, section 72(2) governs situations where the SC has the authority to revoke the CMSL or CMSRL.
In the case for 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 ceases 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; or
(iii) the holder contravenes any of the rules of a stock exchange, futures exchange, approved clearing house or central depository which is binding upon it.

Examples of SC’s Revocation/Suspension
Breach of the AOB’s conditions of registration imposed under Section 31O(3)(a) of the SCMA warranting revocation of registration under Section 31Q(1)(a) of the SCMA…Read more

As for a CMSRL, the SC may revoke the licence (other than 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 directions 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 be Minister of Finance within 14 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.

3.5 Notification and Obligation of Licence Holder
(a) Notification
It is the duty of CMSL or CMSRL holder to notify the SC of any disqualifying event. Disqualifying events are those events 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 licence relates;
(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 license holders under section &&, or
(iv) a change occurs in the information submitted to the Commission in accordance with subsection 60(1) 04 (3) of the CMSA.
When any of the events mentioned above occurs, the holder ofvthe licence shall give notice to the SC in the specified form, particulars in writing not later than 14 days after the ocuurance 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
(v) a licensed person who carries on the business of financial planning
(vi) a financial journalist, or
(vii) an authorized depository agent appointed under section 13 of the Securities Industry (Central Depositories) Act 1991.
The register must be kept at a place within Malaysia nominated by persons mentioned in section 82(1) and such person shall notify the SC in writing after beginning to keep the register. The register must include particulars of the securities to which he has interest in and any new interest must be included in the register within 7 years after the date of the acquisition.

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

A. I and II only
B. II and III only
C. II, II and IV only
D. All of the above

2. Under which of the following circumstances can the Securities Commission Malaysia (SC) revoke the CMSRL for advising on corporate finance?
I. The licence 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 licence or any directions by the SC under the CMSA.

A. II and II only
B. III and IV only
C. I, II an IV only
D. All of the above

References:
CAPITAL MARKETS AND SERVICES ACT 2007 (Act 671)
An Act to consolidate the Securities Industry Act 1983 [Act 280] and Futures Industry Act 1993 [Act 499], to regulate and to provide for matters relating to the activities, markets and intermediaries in the capital markets, and for matters consequential and incidental thereto.
LICENSING HNDBOOK
The Capital Markets and Services Act 2007 (CMSA) repeals the Securities Industry Act 1983 (SIA) and the Futures Industry Act 1993 (FIA). The CMSA, which takes effect on 28 September 2007, introduces a single licensing regime for capital market intermediaries. Under this regime, a capital market intermediary will only need one licence to carry on the business in any one or more regulated activities.
This will mean less cost and paperwork for capital market intermediaries that carry on more than one regulated activity.
This handbook sets out:
(a) the single licensing regime under the CMSA;
(b) the criteria to be met for applying and varying a licence;
(c) the application procedures; and
(d) ongoing obligations imposed on licensed persons, including conditions and restrictions attached to a licence