3.3 Regulation of Scheme Providers and Oversight Functions
Key Takeaways
To be eligible as a Scheme Provider, an applicant must be incorporated in Malaysia, keep the prescribed minimum paid-up capital and shareholders' funds, and hold a Capital Markets Services Licence.
A Scheme Provider may receive only the fees permitted in the deed and disclosed in the prospectus or disclosure document.
A PRS Provider must follow PPA instructions on a member's pre-retirement withdrawal, transfer to another provider or nomination.
Anyone performing a fund's oversight function, whether an individual or a committee member, must not also be a member of the Shariah adviser appointed for the same fund.
A Shariah committee must consist of at least three individual Shariah advisers.
The Central Role of a Scheme Provider
Scheme Providers receive investors' money, process transactions and manage the funds. Their overarching duty is the proper, diligent and efficient operation of the scheme, in good faith and in investors' best interests. The rules come mainly from the CMSA, the PRS Regulations and the UTF and PRS Guidelines.
Key Duties
A Scheme Provider must, among other things:
- Publish on its website: offering documents (prospectus, disclosure document and PHS); circulars, notices, fact sheets and announcements; scheme reports; the latest NAV per unit; and distributions declared with their income/capital composition in percentages.
- Make the deed, financial records and other records available to the Trustee, persons authorised by the Trustee or the auditor appointed by the Trustee.
- Not misuse its position to gain an advantage for itself or others, or to cause detriment to investors.
- Convene meetings of unit holders or members when a change may materially affect their interests.
- Receive only fees permitted in the deed and disclosed in the prospectus or disclosure document.
- Take reasonable steps to replace a Trustee as soon as practicable when the CMSA requires it (for example if the Trustee ceases to exist or becomes ineligible).
- Keep adequate records giving a complete and accurate view of each scheme.
- Avoid conflicts of interest; where unavoidable, put safeguards in place so the scheme is not disadvantaged.
Extra duties of a PRS Provider towards the PPA
The PPA is the central repository of member data. To support it, a PRS Provider must:
- provide information and meet the PPA's reporting requirements;
- notify the PPA promptly of changes to schemes, funds or the disclosure document;
- help open private pension accounts, including scanning and uploading forms; and
- follow PPA instructions when a member asks the PPA to make a pre-retirement withdrawal, transfer to another PRS Provider, or act on a nomination after the member's death.
Approval and Eligibility
The CMSA requires schemes to be managed by approved Scheme Providers. The SC can attach conditions and revoke approval for breaches. A Scheme Provider is a company that establishes a scheme, issues or offers its units, and operates and administers it under the deed, offering document and Guidelines.
| Eligibility criterion | Detail |
|---|---|
| Incorporation | An entity incorporated in Malaysia |
| Capital | Minimum paid-up capital and shareholders' funds as prescribed, at all times |
| Licence | A CMSL meeting the SC Licensing Handbook |
| Resources | Adequate qualified staff; adequate systems and processes; risk management systems to identify, assess, mitigate, control and monitor risks |
Authorising a Scheme
A Scheme Provider needs:
- authorisation to establish the scheme, including approval of the Management Company and the Trustee;
- registration of the deed and any supplementary deed; and
- registration and lodgement of the UTS prospectus or PRS disclosure document.
After the SC registers the scheme, deed and prospectus/disclosure document, the deed is signed under seal by the Scheme Provider. Authorisation can be revoked if the application contained false or misleading information or a material omission, the provider fails to follow SC directions or the Guidelines, or revocation is needed to protect the public or investors.
Oversight Functions
The UTF and PRS Guidelines (and, for Islamic funds, the Guidelines on Islamic Capital Market Products and Services) require oversight functions to protect investors.
| Oversight function | Key responsibilities and rules |
|---|---|
| Board of Directors | Ensures policies and procedures support a sound compliance framework; independent directors safeguard unit holders' and members' interests |
| Individual and/or committee | Ensures chosen strategies are properly implemented; monitors and evaluates fund management performance; approves brokers or dealers on a best execution basis; approves cross-trade policies. An individual must be independent of the functions overseen; a committee may include some non-independent members if it can still work effectively. Neither may be a member of the Shariah adviser for the same fund. |
| Shariah adviser | Advises on Shariah matters including documentation; ensures compliance with Shariah rulings endorsed by the SAC; reviews compliance and investment transaction reports; reports in the fund reports whether the fund was managed in line with Shariah; applies ijtihad (intellectual reasoning) |
| Shariah committee | Must consist of at least three individual Shariah advisers |
| Compliance | Ensures compliance with all requirements; maintains a compliance manual and code of conduct for staff; reports directly to the board regularly (or to a compliance committee if one exists); for Shariah schemes, the compliance officer needs basic knowledge of Shariah |
| Internal audit | Reports on the adequacy, effectiveness and efficiency of management, operations, risk management and internal controls |
| Audit committee | Under the PRS Guidelines, a PRS Provider's internal audit reports to an audit committee, which reviews the audit framework, ensures audit findings are resolved, and reviews fund reports, the provider's annual report, related-party transactions and conflicts of interest |
Exam Pointers
- A Scheme Provider's only legitimate fees are those in the deed and disclosed in the offering document.
- Approval of a Scheme Provider is by the SC; FIMM registers the Provider as a Distributor for marketing purposes.
- Three Shariah advisers minimum for a Shariah committee.
- The audit committee requirement is specific to PRS Providers in the study guide.
Which is NOT an eligibility requirement for a company applying to act as a Scheme Provider?
Being incorporated in Malaysia
Being a member bank of Bank Negara Malaysia's payment system
Maintaining the prescribed minimum paid-up capital and shareholders' funds
Holding a Capital Markets Services Licence
An individual who performs a unit trust fund's oversight function is also invited to join the fund's Shariah adviser panel. What does the study guide say?
It is allowed if the board approves it in writing
It is allowed only for PRS funds, not UTS
It is encouraged because it improves coordination
It is not allowed for the same fund
A PRS member asks the PPA to transfer her accrued benefits to another PRS Provider. What must the current PRS Provider do?
Refuse unless the member visits its office in person
Seek approval from the SC before acting
Pay the money directly to the member in cash
Take all steps to comply with the PPA's instructions on the transfer
Sections you finish are checked off in the contents.