3.1 The Regulatory Framework: The SC, Other Regulators and FIMM's Dual Role
Key Takeaways
Regulation of the UTS and PRS industry is laid out in the Securities Commission Act 1993 (SCA) and the Capital Markets and Services Act 2007 (CMSA).
The SC's powers cover Management Companies, schemes, Distributors and Consultants, Scheme Trustees, Employer Trustees and the PRS Administrator.
Bank Negara Malaysia's rules apply to the insurance component when a UTMC bundles insurance with a UTS, and to the overseas investment activities of schemes through its foreign exchange policy.
A listed UTS must meet Bursa Malaysia's Listing Requirements in addition to the SC's requirements.
FIMM serves a dual role as a self-regulatory organisation and as the industry representative, and it is the body approved by the SC to conduct UTS and PRS examinations and register Consultants.
Why Regulation Matters
Without investor confidence in the capital market and its participants there is little investment and the economy cannot grow as expected. The study guide lists four major elements of financial regulation:
- protection of investors' interests;
- proper disclosure to investors;
- control over market participants, including restrictions on who may enter the industry; and
- prevention of improper market practices.
Regulation also supports development by setting out the rights, duties and responsibilities of participants.
The Securities Commission Malaysia (SC)
The SC, established on 1 March 1993, is Malaysia's capital market regulator. For UTS and PRS:
- Regulation is laid out in the Securities Commission Act 1993 (SCA) and the Capital Markets and Services Act 2007 (CMSA).
- The aim is a properly functioning industry that promotes capital market stability and protects unit holders, PRS members and beneficiaries through prudential and investor-protection requirements.
- The SCA and CMSA let the SC issue guidelines, including the Guidelines on Unit Trust Funds (UTF Guidelines) and the Guidelines on Private Retirement Schemes (PRS Guidelines).
- The SC's powers cover Management Companies, schemes, Distributors and Consultants, Scheme Trustees, Employer Trustees and the PRS Administrator, and it can take enforcement action for any breach of securities laws, regulations or guidelines.
Scope of the SC's regulatory functions
| Function | Example |
|---|---|
| Registering authority for prospectuses | Of corporations other than unlisted recreational clubs |
| Approving authority | Corporate bond issues |
| Regulating securities and futures | All matters relating to securities and futures contracts |
| Take-overs and mergers | Regulating take-overs and mergers of companies |
| Fund management | All matters relating to fund management, including UTS and PRS |
| Licensing | Licensing and supervising all licensed persons |
| Market institutions | Supervising exchanges, clearing houses and central depositories |
| Self-regulation | Encouraging self-regulation |
| Conduct | Ensuring proper conduct of market institutions and licensed persons |
The SC's mission is "to promote and maintain fair, efficient, secure and transparent securities and derivatives markets; and facilitate the orderly development of an innovative and competitive capital market". Its areas of responsibility include developing the capital market and its segments (including the Islamic capital market and fund management), facilitating innovation and digital services, sustainable finance, supervising conduct, championing corporate governance, and cross-border cooperation. It also runs investor-education initiatives.
The SC's mandate for PRS
The Government entrusted the SC with developing PRS as part of the private pension landscape in order to:
- provide a well-regulated and supervised PRS industry;
- give members choice and flexibility in saving for retirement;
- build trust and confidence in PRS;
- facilitate a cost-effective private pension framework; and
- safeguard members' interests through prudent operational guidelines.
Other Regulators
| Regulator | Relevance to UTS and PRS |
|---|---|
| Companies Commission of Malaysia (CCM) | Incorporates companies, registers businesses and enforces corporate law. Distributors and Scheme Trustees, as companies, must meet the Companies Act and CCM rules. |
| Bank Negara Malaysia (BNM) | Governed by the Central Bank of Malaysia Act 2009; promotes monetary and financial stability. Oversees the clearing, settlement and payment systems the industry uses; regulates insurers, so its rules apply to the insurance component if a UTMC bundles insurance with a UTS; and its foreign exchange rules apply to schemes' overseas investments. |
| Bursa Malaysia | The exchange. A listed UTS must meet Bursa's Listing Requirements in addition to SC rules. |
FIMM: Self-Regulator and Industry Voice
The Federation of Investment Managers Malaysia (FIMM) has a dual role:
| Role | What FIMM does |
|---|---|
| Self-regulatory organisation (SRO) | Formulates rules, guidelines and standards for Distributors and Consultants; upholds Consultants' professional standards; takes disciplinary action |
| Examination and registration body | Approved by the SC to conduct the UTS and PRS examinations and to register successful candidates as Consultants |
| Industry representative | Advocates the orderly growth of the industry, represents it on issues affecting it and works with the SC on development projects |
FIMM's SRO work focuses on marketing and distribution: it promotes best practice and professionalism among Distributors and Consultants so that investors are protected and public confidence is maintained.
Who Approves What (a Favourite Exam Item)
FIMM's practice question asks which parties require SC approval. The answer is Scheme Providers, schemes and Trustees. Consultants are registered with FIMM, not approved by the SC.
| Party | Gatekeeper |
|---|---|
| Scheme Provider (UTMC / PRS Provider) | SC approval plus a Capital Markets Services Licence (CMSL) |
| Scheme (UTS fund, PRS and its funds) | SC authorisation; deed and prospectus/disclosure document registered with the SC |
| Scheme Trustee | Registration with the SC |
| UTS / PRS Consultant | Registration with FIMM after passing the FCE |
| PRS Administrator | Approved by the SC (the Private Pension Administrator) |
Which of the following require approval or registration by the Securities Commission Malaysia rather than FIMM?
Only the Private Pension Administrator
Collection-point staff of IUTAs
UTS Consultants and PRS Consultants
Scheme Providers, schemes and Trustees
A UTMC bundles life insurance cover with a unit trust product. Whose requirements apply to the insurance component?
Bank Negara Malaysia
The Companies Commission of Malaysia
Bursa Malaysia
The Private Pension Administrator
Which statement best describes FIMM's role?
The central bank's agent for supervising unit trust trustees
A government agency that administers every member's PRS account
An SRO and industry body that examines and registers Consultants
A statutory body that licenses fund management companies under the CMSA
Sections you finish are checked off in the contents.