CHAPTER 3
THE PRIVATE RETIREMENT SCHEME PROVIDER
Learning objectives
Only PRS Providers who have been approved by the SC can establish, offer or provide a PRS or hold themselves out as establishing, offering or providing a PRS.
At the end of this chapter, you should be able to:
(a) list the eligibility and selection criteria for a PRS Provider;
(b) describe in detail the duties and responsibilities of a PRS Provider;
(c) list the key personnel of a PRS Provider and their roles; and
(d) explain the operational procedures with regard to—
– the register of members;
– the “cooling-off right”;
– any conflict of interest;
– rebates and soft commissions;
– inspection by members;
– meeting of members;
– investment committee;
– audit committee;
– Shariah adviser; and
– panel of advisers.

3.1 Approval
The PRS Provider must be approved by the SC.
(a) Eligibility criteria to qualify as a PRS Provider, one must—
(i) be an existing financial intermediary or parent or holding corporation
of an existing financial intermediary;
(ii) have relevant experience in operating and administering retail or
pension funds or life insurance business;
(iii) meet the minimum paid-up capital of RM5 million and the
shareholders’ fund requirements of RM20 million which is to be
maintained at all times;
(iv) have good corporate governance in terms of clear lines of reporting, responsibility and authority within the organisational structure, with
the board of directors of the PRS Providers being fit and proper
persons with relevant skills, experience and competence to perform
their roles in the company; and
(v) establish a comprehensive compliance and risk management system
including an internal audit framework, a risk management framework,
a compliance framework and a business continuity plan.
Additionally, the proposed PRS Provider with current business operations must show that there are adequate policies to manage any conflict of interest between the PRS business and its current operations.
(b) Selection criteria
(i) Track record
A strong track record in the fund management industry is an essential
selection criterion. The PRS Provider can demonstrate this by—
(a) having relevant experience in fund management, pension fund
management or life insurance investment;
(b) having assets under management of RM1 billion (or equivalent
in foreign currency) annually within the last three consecutive
years; and
(c) having key personnel with at least three years in the relevant
investments in the proposed funds in the scheme and ten years
of fund management experience in a related industry.

(ii) Administrative capabilities
The PRS Provider will be required to have effective administrative
systems. The PRS Provider must demonstrate the ability to—
• handle large volumes of transactions;
• administer small and inactive account balances;
• interface with the PPA and the other PRS Providers’ systems to
accommodate the members investment requests;
• handle and resolve complaints;
• ensure confidentiality; and
• produce reports to the members, Scheme Trustees, the PPA and
the SC.

3.2 Duties and responsibilities
In addition to the duties and responsibilities under Regulation 10, PRS Providers
are required to comply with the requirements under the PRS Guidelines and
other applicable guidelines.

(a) General
(i) Operation of the Scheme
A PRS Provider must operate the PRS, manage the funds under the PRS
and exercise its responsibilities according to the—
• deed and disclosure document;
• PRS Guidelines;
• securities laws including the PRS Regulations; and
• best business practices observed within the investment
management industry.
A PRS Provider must—
• observe high standards of integrity and fair dealing in
administering the PRS and managing the funds to the best
interest of the members;
• ensure that the fund’s property be clearly identified and
segregated from the other properties of the PRS Provider; and

• comply with any other duties conferred on the PRS Provider by
the deed so long as it is not in contravention of existing laws
and regulations.
(ii) A strong organisation structure
To ensure that the PRS Provider will be adequately equipped to undertake
the business of managing the Scheme in a proper and efficient manner,
the PRS Provider must build a strong organisational structure. The
organisational structure should have—
(a) clear lines of responsibility, authority and reporting;
(b) strong risk management and control systems;
(c) adequate and qualified human resources; and
(d) adequate and appropriate systems, procedures and processes.
(iii) Accountability to the Scheme Trustee
A PRS Provider will have to account to the Scheme Trustee for any
loss suffered by the fund as a result of inadequate care and diligence
required in operating the Scheme and managing the funds under the
Scheme.
(iv) Compliance by PRS Providers’ officers and delegates
A PRS Provider must ensure that its officers and delegates—
(a) do not make use of information acquired in the process of
fulfilling their roles to gain an advantage for themselves or to
cause detriment to the members of the PRS;
(i) do not abuse their position to gain an advantage for themselves
or to cause detriment to the members of the PRS; and
(ii) comply with any duties and obligations prescribed by the
securities law, trust laws and the PRS Guidelines.
(b) Duties to the PPA
The PPA is established to act as the central repository of information and data of members of the Schemes as well as to enhance the overall administrative efficiency in the PRS industry.
To enable the PPA to perform its duties and responsibilities, a PRS Provider must—
(a) provide information and comply with reporting requirements, in such a
manner and frequency as stipulated by the PPA;
(b) notify the PPA in a timely manner of any changes made to the schemes
or funds under the scheme or disclosure documents; and
(c) take all steps to comply with any instructions given by the PPA with
respect to a member’s request made through the PPA to—
– open a private pension account including scanning and uploading of the relevant forms and information;
– make any withdrawal from any fund under the Scheme; or
– transfer monies to another PRS Provider.
(c) Accurate valuation and pricing
The PRS Provider must take reasonable safe guards to ensure that all the funds under the Scheme as well as each fund unit is correctly valued and priced and not omit anything in the pricing that would benefit the PRS Provider to the detriment of the PRS member.
(d) Transaction at arm’s length
The PRS Provider must conduct all transactions for a fund at arm’s length (as if all parties are independent and on an equal footing) and ensure that it would not conduct transactions that would result in unnecessary costs or risk to the fund.
(e) Adequate accounting and other relevant records
(i) The PRS Provider must maintain adequate records—
(ii) to enable a complete and accurate view of the Scheme and its funds;
(iii) to comply with the deed, the PRS Guidelines, securities and other relevant law; and
(iv) to ensure that the financial statements of the Scheme and its funds give a true and fair view of the financial positions in accordance with approved accounting standards of each fund’s positions at the end of a financial period.
(f) Holding of units by the PRS Provider
A PRS Provider or its nominees must not hold any units in a fund under the Scheme, other than when complying with repurchase requests by members or creating new units to meet anticipated requests for units from contributors subject to a maximum of—
(a) three million units per fund; or
(b) 10% of the units in circulations of the fund, whichever is lower.
(g) Complaints handling
A PRS Provider must establish, maintain and implement written policies and procedures to ensure that complaints from members are handled in a timely and appropriate manner, and to ensure that these complaints are satisfactorily resolved. A register of complaints received and any action taken must be maintained by the PRS Provider.
3.3. Board of directors and key personnel
(a) Board composition
The board of directors of a PRS Provider must comprise at least two
independent members and must maintain a minimum ratio of at least
one-third independent members at all times. The duties of the independent
directors are to safeguard the interest of the PRS members.
(b) Key personnel
(i) Chief executive officer
The chief executive officer of the PRS Provider must be a full-time
officer.
(I) Designated person responsible for the fund management function
The PRS Provider must appoint an individual to be responsible for the
fund management function of each fund under the Scheme and this
individual can be responsible for more than one fund.
(ii) Compliance officer
The compliance officer ensures compliance with the deed, PRS disclosure
document, the PRS Guidelines and securities laws, by reporting his

findings to the board of directors and where established, the compliance
committee. If the PRS Provider administers a fund in accordance to
Shariah principles, the compliance officer must be conversant with
Shariah laws and principles.
The duties of the compliance officer are set out in the Guidelines on
Compliance Function for Fund Management Companies. In addition,
the compliance officer is tasked to—
– monitor and resolve conflict of interest situations;
– examine and investigate irregularities in the PRS Provider’s
operations;
– be responsible for the compliance manual and the code of
conduct for employees of the PRS Provider;
– advise on compliance matters and regulatory developments;
and
– be responsible for compliance training in the PRS Provider.
(iii) Internal audit function
A PRS Provider must maintain an independent internal audit function
to report to the audit committee on the adequacy, efficiency and
effectiveness of the risk management and internal controls of the PRS
Provider.

3.4 Operational matters
(a) Register of members
A PRS Provider must keep an up-to-date register of members at the registered office or principal place of business and ensure the following information required under regulation 17 of the PRS Regulations are included:
(a) The name, address and identity card number of the members;
(b) The number of units held by each member in each fund under the
Scheme;
(c) The date on which each member was entered into the register;
(d) The date on which any person ceases to be a member; and
(e) Any other information as required by the SC.
In addition to regulation 17, a PRS Provider must—
(a) enter into the register the member’s passport number for members that
are foreigners; and
(b) enter into the register where the PRS Provider holds units of funds in
the Scheme, the corporation’s name and registration number.
A PRS Provider must also—
(a) alter the register upon receiving a written notice of a change of name
or address of any member; and
(b) refuse to make entries into the register in joint names.
In the event of conflict or discrepancy, the entries in the register of members as maintained by the PRS Provider shall prevail over the information in the private pension account maintained by the PPA.
A PRS Provider may, on giving not less than 14 days’ notice to the SC, close the register but no part of the register should be closed for more than 30 days in any calendar year. Any members aggrieved by such an action have a legal recourse to rectify the register.
(b) Cooling-off right
A cooling-off right must be given to a member who contributes to a PRS for the first time. Once an individual is a member of a PRS and has exercised his cooling-off right, the cooling-off right is not available with regard to contributions in other Schemes.
This will provide the member (other than staff of the PRS and any other person approved to deal in the PRS) the opportunity to reconsider the decision to participate in the PRS. The cooling-off right period must not be fewer than six business days commencing from the date of the receipt of the PRS application by the PRS Provider. The refund for the exercise of this cooling-off right would be the purchase price of the units and any charges imposed with purchase. All monies would be returned to the member as if the person never contributed to the PRS in the first place.
(c) Conflict of interest
A PRS Provider and others involved in the running of the PRS like the Scheme Trustee, delegates and service providers must avoid conflicts of interest wherever possible. If conflicts are unavoidable, then a PRS Provider must ensure that the conflict does not result in any disadvantages to the PRS member, that is all transactions with the related parties must be transacted on an arm’s length basis as if they are independent parties. The independent directors of the PRS Provider have to approve the appointment and renewal of these related parties.
(d) Rebates and soft commissions
Soft commissions are goods and services (e.g. research and news services) provided by brokers/dealers but not paid for in actual dollars but by trading commissions generated from fund activities. Rebates are a return of the trading commissions back to the PRS Provider based on some measure (for example, volume rebates).
Rebates must be redirected to the specific fund concerned. However, goods and services from soft commissions may be retained by the PRS Provider if it can be demonstrated that the goods and services benefit members and—
(a) the dealings are done on the best available terms; and
(b) the soft commission practices are disclosed in the disclosure document and the fund report.
The compliance officer must verify and inform the PRS Provider’s board of directors or audit committee or compliance committee that the goods and services received by the PRS Provider indeed comply with the requirements.
(e) Inspection by members
All PRS members have a right to inspect documents that relate to their PRS.
Thus the PRS Provider and the Scheme Trustee must make available at their principal place of business these documents:
(a) The deed and any supplementary deed of the PRS;
(b)The current disclosure document and supplementary disclosure
document of the PRS (if any);
(c) The latest annual and interim reports of the various funds of the PRS;
(d) Each material contract and document referenced by the disclosure
document and supplementary disclosure document;
(e) All other documents referred to in the disclosure documents and
supplementary disclosure documents including reports, letters,
valuations and statements by any experts;
(f) The audited accounts of the PRS Provider and the funds under the
Scheme for the last three years or from the date of incorporation or
commencement (if less than three years);
(g) Latest audited account of the PRS Provider and the funds under the
Scheme for the current financial year; and
(h) any consents given by experts or persons named in the disclosure document or supplementary disclosure documents as having made a statement that is included in the disclosure documents of supplementary documents; for inspection by members at all time and without charge or a fee during the ordinary business hours of the PRS Providers and the Scheme Trustees.
(f) Meeting of members
(i) Meetings called by the PRS Provider or Scheme Trustee A PRS Provider or a Scheme Trustee may call for a meeting of the PRS or fund under the Scheme at any time by—
(a) giving at least 14 days' written notice to members;

(b) specifying in the notice, the venue and time as well as the resolutions being proposed; and
(c) publishing the notice of the said meeting in the local newspaper.
(ii) Meeting requisitioned by members
Members of a PRS may also requisite the PRS Provider to call for a meeting under the provisions of Regulation 20 of the PRS Regulations if the following are met:
(a) Not less than fifty members or one-tenth of all members of the Scheme or the fund as the case may be, direct the PRS Provider to do so in writing;
(b) The written direction is given to the PRS Provider at its registered office; and
(c) The purpose of the meeting is to consider the most recent financial statement; to give the Scheme Trustee such directions as the meeting deems proper; or to consider any other matter in relation to the Scheme or the fund or the deed.
Under such circumstances, the PRS Provider would need to call for a meeting within 21 days after receiving the request from the members and give written notice to all members of such a meeting by writing to their last known address. Notice must also be given by publishing an advertisement in a national language national daily and one other newspaper approved by the SC.
(g) Investment committee
(i) Part of the oversight function in a PRS
In addition to the Scheme Trustee, the investment committee is formed
as part of the oversight function in a PRS that will give added comfort
to the members that the investment elements of the funds under a
Scheme are properly maintained and adhere to the objectives and
limitations of the deed and other disclosure documents.
(ii) Composition
An investment committee of a fund must comprise at least three
individual members and a minimum ratio of at least one-third
independent members with at least two independent members at all
times.
An individual can be appointed to be in more than one investment
committee of a PRS but he should not hold office in the following due
to a conflict of interest:
(a) As a member of an investment committee in fund administered
by another PRS Provider or management company outside the
group of companies;
(b) As a director of another PRS Provider or management company
outside the group of companies;
(c) As a Shariah adviser of the same fund;
(d) A member of the panel of adviser of the same fund; and
(e) As an officer of the delegate that carries on the fund
management function of the same fund.
The PRS Provider must ensure that the individuals appointed to the
investment committee are “fit and proper” as defined by the PRS
Guidelines and have the requisite fund management expertise to carry
out their roles and responsibilities.
(iii) Roles and responsibilities
An investment committee’s roles and responsibilities include the
following:
(a) Select strategies appropriate for achieving the fund’s objective;
(b) Ensure the strategies are properly and efficiently implemented;
and
(c) Actively monitor, measure and evaluate the performance of the
fund.
(h) Audit committee
(i) Composition
The audit committee must comprise non-executive members of the PRS
Provider with at least three individual members and a minimum ratio of
at least one-third independent members with at least two independent
members at all times. A member of an audit committee must not hold
office as—
(a) Shariah adviser for any fund of the PRS Provider;
(b) a member of the panel of advisers for any fund of the PRS
Provider; and
(c) an officer of the delegate that carries on the fund management
function for any fund of the PRS Provider.
(ii) Roles and responsibilities
Similar to the investment committee and the Scheme Trustees, the audit
committee helps in the oversight function of the fund by reviewing and
reporting to the board of directors on the internal audit framework
and function, and ensuring that matters highlighted by the audit report
have been satisfactorily resolved. The audit committee also reviews the
interim and annual report of the PRS Provider as well as any related-
party transaction and conflict-of-interest situation that may arise.
Shariah adviser
(I) Composition
A Shariah adviser must be independent of the PRS Provider and be
registered with the SC. Where individuals are appointed, a Shariah
adviser must comprise at least three individuals who meet the “fit and
proper” criteria. Where a corporation is appointed as an adviser, the
said corporation must engage at least one Shariah expert who meets
the “fit and proper” criteria. “Fit and proper” criteria includes having a
good reputation and character, possessing high standards of integrity,
fair dealings with everyone, taking reasonable care in carrying out
the duties, and possessing the necessary qualifications, expertise and
experience to perform duties.

ii. Roles and responsibilities
The principal role of the Shariah adviser is to ensure that all aspects of
the PRS and fund management business including the fund structure
and investment as well as documents like the deed and disclosure
documents are compliant with Shariah principles. The adviser would
need to prepare a report to be included in the PRS’ annual and interim
reports stating whether the Shariah-compliant fund has been operated
and managed in accordance with the Shariah principles for the financial
period in question.
(j) Panel of advisers
(i) General
When a fund adheres to a specific set of principles (for example socially responsible investment), then a panel of advisers must be appointed.
This panel must comprise at least three individuals who are independent
from the PRS Provider and must meet the “fit and proper” criteria.
(ii) Roles and responsibilities
The panel of advisers have a responsibility to ensure that the fund is
managed according to the specific principles of the fund by reviewing
the fund’s compliance report and the investment transaction report.
The panel of advisers must also prepare a report to be included in the
PRS annual and interim reports stating their opinion on whether the
investment principles have been adhered to.

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

Private Retirement Scheme

Overview and Glossary/Abbreviations – Introduction to the Private Retirement Schemes Industry – Regulatory Framework – The Private Retirement Scheme Provider – Features of The Private Retirement Schemes – Constitution of the Private Retirement Schemes – Private Retirement Schemes Investments – Private Retirement Scheme Distributor and Consultant. 

Investment Management And Corporate Finance


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