fund management

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fund management
Module 2B
Business Challenges and Regulatory
Expectations – What Directors Need
to Know (Fund Management)
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
V2
Notice
• The views expressed here are solely those of the speaker in his private
capacity and do not in any way represent the views of the Securities Industry
Development Corporation (SIDC) or the Securities Commission Malaysia (SC).
• The cases mentioned in this presentation have been prepared, cited or
described on the basis for discussion rather than to illustrate either effective
or ineffective handling of a business situation.
• No part of this presentation may be reproduced, stored in a retrieval system
or transmitted in any form or by any means without the permission of the
SIDC.
2
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
What we will touch today…..







History
Elements of Regulation
Core Principles
Key responsibilities of a Director
Industry Landscape
Latest changes to Guidelines
Investment
 Types of Investments
 Performance measurements
 Risk management
 Key Internal Controls-BCP
 Structure
 Duties to Clients
 Client relationship
 Safeguarding of Assets
 Segregation of





Function/Recordkeeping
Governance
 Compliance
 Disclosure of Interest/Conflicts
 Sales Practice Guidelines
Market Misconduct
 Insider Trading/Price Sensitive
Information/STR
Others
 Outsourcing
 Training/Education
Experiences Sharing
FAQ/References
Page|3
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Just A Little Background & History…. (Cont’d)
Year
Event
1959
First Malayan Fund was launched by Malayan Unit Trust Ltd.
1966
With the breakaway of Singapore, Asia Unit Trust took over
operations, naming it Malaysian Investment Fund
1967
Amanah Saham Mara Berhad launched the first Mara Bumiputra
Fund
1980s
1974
Amanah Saham Pahang, the first state-owned UTMC was
established
1990s
1975
Kuala Lumpur Mutual Fund Berhad (Now known as Public
Mutual Berhad) was established
2000s
1977
MIC Unit Trusts Berhad (Now known KL City Unit Trust Berhad)
was established
2010s
1979
Through UTS, the government intended to achieve the New
Economic Policy objective of increasing Bumiputra’s
shareholding in public and private limited companies to 30% of
total equity ownership
1950s
1950s
1960s
1960s
1970s
1970s
Page|4
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Just A Little Background & History…. (Cont’d)
1950s
Year
Event
1981
PNB launched the first national Bumiputra unit trust fund – ASN
at $1.00.
1989
Malaysia’s first listed REIT launched by Arab-Malaysian Property
Trust Management Berhad (Now known as AmProperty Trust
Management Berhad)
1990
2nd national Bumiputra fund was ASB was launched. Stamp
duty on transfer of units in UTS was waived
1991
SC introduced The Guidelines on Unit Trust Funds
1993
 SC is responsible to regulate all matters relating to the unit
trust industry (The Securities Commission Act)
 Establishment of FMUTM to represent UTMC
 Arab-Malaysian Unit Trust Berhad (Now known as
AmInvestment Services Bhd) launched the first Syariah UTS
1960s
1970s
1980s
1980s
1990s
1990s
2000s
2010s
Page|5
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Just A Little Background & History…. (Cont’d)
1950s
Year
Event
1994
SC revised The Guidelines on Unit Trust Funds
1960s
1995
Dana Johor, the first state UTS opened to both Bumiputra and
non-Bumiputra investors
1970s
1996
 The Securities Commission (UTS) Regulations, 1996
 Stockbroking houses with Min. RM100 million paid-up capital
were allowed to set up UTMC
 Foreign fund management companies were allowed to set up
operations under new Guidelines issued by the SC
 EPF contributors allowed to withdraw money from A/C 1 to
invest in UTS
1997
 The SC issued revised Guidelines on Unit Trust Funds
 The FMUTM Secretariat began registration of PDUT (Now
known as UTC)
 Funds under management affected by financial crisis
1980s
1990s
1990s
2000s
2010s
Page|6
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Just A Little Background & History…. (Cont’d)
1950s
Year
1960s
1998
 The FMUTM published Understanding Malaysian Unit Trusts
 The SC commenced issue of Practice Notes to Guidelines on
Unit Trust Funds
 Lipper was endorsed by the FMUTM
1999
 The FMUTM hosted the XVII International Investment Funds
Conference in 2003
 The Unit Trust Examination was introduced
1970s
Event
1980s
1990s
1990s
2000s
2010s
Page|7
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Just A Little Background & History…. (Cont’d)
1950s
1960s
1970s
1980s
1990s
2000s
2000s
2010s
Year
Event
2000
 The industry preparations for the Y2K “bug” proved successful
 Issued first Guidelines for the registration of IUTA for Marketing
and Distribution or UTS
 Issued By-Laws covering its Disciplinary Proceedings against
members
 First UTS with a single selling and repurchase unit price with no
entry fee is launched, i.e. RHB Bond Fund
 First Islamic bond fund is launched, i.e. RHB Islamic Bond Fund
 Issued Practice Note 15 on Distribution of Returns from Unit
Trust Funds
 The first Malaysia Unit Trust Week was launched jointly by the
FMUTM and PNB
 The Securities Commission (Amendment) Act replaced the
Securities Commission (Unit Trust Scheme) Regulations. The
regulation of UTS is now in a single Act
Page|8
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Just A Little Background & History…. (Cont’d)
1950s
1960s
1970s
1980s
1990s
2000s
2000s
Year
Event
2001 2005
 The Malaysian Capital Market Master plan announced by SC
highlighted significant opportunities for growth in the unit trust
industry over the next 10 years, including;
 Online trading of units in UTS
 Encouragement for further development of the financial
planning industry
 Development of private pensions as an alternative of EPF
 Improved eligibility for EPF transfers to approved UTS Review of
restrictions on overseas-invested UTS
 Streamlined UTS approval procedures through the SC
2010s
Page|9
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Just A Little Background & History…. (Cont’d)
1950s
Year
Event
1960s
2001 2005
 Introduction of ETF
Introduction of venture capital trusts
 Host FMUTM hosted the XVII Annual Assembly of the
International Investment Funds Associations
 Introduced computerized UTE and registration of UTC
 SC issued Guidelines on Real Estate Investment Trust
 SC issued Guidelines on Exchange Traded Funds
 First exchange traded fund was launched by Aminvestment
Services Bhd i.e. ABF Malaysia Bond Index Fund
 First foreign UTS was launched by MAAKL Mutual Bhd, i.e.
MAAKL Pacific Fund
 Issued the first Standard and Practice Note on Standard Cut-off
Time for Unit Purchases and Redemptions
1970s
1980s
1990s
2000s
2000s
2010s
Page|10
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Just A Little Background & History…. (Cont’d)
1950s
1960s
1970s
1980s
1990s
2000s
2000s
Year
Event
2005 now
 FMUTM was accorded SRO status and rebranded as FIMM
 CMSA was introduced to replace SIA in 2007
 Global Financial Crisis (GFC) resulted in initiatives established
for investor protection- Disclosure requirements enhanced
 2nd Capital Markets Master Plan was launched in 2011
 Private Retirement Schemes (PRS) was established and
launched
 Liberalization of market participants shareholdings
 Continued progress on market innovation-equity crowd funding
 LOLA
2010s
2010s
Page|11
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Major Elements Of Regulation In Any Financial System
The
protection of
Investor’s
interest
Control over
market
participants
Proper
disclosure to
investors
Prevention of
improper
market
practice
Page|12
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Core Principles
The SC promotes a culture of compliance, professionalism, ethical standards and
responsible conduct amongst fund management companies , its representatives and
its employees…..with that the following core principles is to be complied to:
INTEGRITY
CLIENT ASSET PROTECTION
SKILL, CARE & DILIGENCE
COMMUNICATION WITH INVESTORS
ACTING IN CLIENT’S INTEREST
COMMUNICATION WITH CLIENTS
SUPERVISION & CONTROL
CONFLICT OF INTEREST
ADEQUATE RESOURCES
COMPLIANCE CULTURE
BUSINESS CONDUCT
DEALING WITH SC
Page|13
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Regulatory Structure
Govern the operations
and administration of the
UTS
Has powers to prosecute
and impose penalties
The primary regulator of
the securities/derivatives
industry
Securities
Commission
Its powers are wide
ranging, covering UTMC,
UTS, IUTA, CUTA, UTC
and fund managers
responsible for investing
the assets of the UTS
/portfolios managed
Page|14
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Functions Of The Securities Commission
•
•
•
•
•
•
•
•
To advise the Minister of Finance on all matters relating to the
securities and derivatives industries
To regulate all matters relating to securities and derivatives contracts
To ensure that the provisions of the securities laws are complied with
To regulate the take-over's and mergers of companies
To regulate all matters relating to unit trust industry
To be responsible for supervising and monitoring the activities of any
exchange, clearing house and central depository
To take all reasonable measures to maintain the confidence of
investors in the securities and derivatives markets by ensuring
adequate protection for such investors
To promote and encourage proper conduct amongst members of the
exchanges, clearing houses, central depository and all licensed and
registered persons (including UTC)
Page|15
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Functions Of The Securities Commission (Cont’d)
 To suppress illegal, dishonorable and improper practices in dealings in
securities and dealings in derivatives, and the provision of investment
advice or other services relating to securities or derivatives contracts
 To consider and make recommendations for the reform of the law
relating to securities and derivatives contracts
 To encourage and promote the development of securities and derivatives
markets in Malaysia including research and training in connection thereto
 To encourage and promote self-regulation by professional associations or
market bodies in the securities and derivatives industries
 To license and supervise all licensed persons as may be provided for
under any securities law
 To promote and maintain the integrity of all licensed and registered
persons in the securities and derivatives industries
Page|16
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
What Is Fund Management?
Management of a portfolio of securities or
derivatives for investment
The most significant player in managing investment
portfolios are the fund management companies
In Malaysia- FM companies licensed to carry out the
regulated activity of fund management are holders of
a Capital Markets Services License ( CMSL)- save for
the relevant provisions of the CMSA.
Page|17
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Investment Management Business

Asset Management Business or Investment Management Business in its current form is
an amalgamation of different industries pursuant to the enactment of the CMSA 2007.

Companies undertaking investment management businesses can be loosely classified as:
a) Asset Management Companies
b) Unit Trust Management Companies
c) Asset Management Company (“AMC”) – means a company that can offer fund
management services to institutions, corporations, individuals and may also
include unit trust management companies. An AMC cannot manufacture, sell and
manage retail unit trust but can offer wholesale funds. The regulated activity
under the CMSA is Fund Management activity.
d) Unit Trust Management Company ("UTMC") - means a company that is authorized
to issue or offer for purchase of units of a Unit Trust scheme. The regulated activity
under the CMSA is Dealing in securities – restricted to unit trust activity.
e) Malaysia is a pioneer in the region with the establishment of the first unit trust
fund in 1959. In the 1990s, the investment management industry experienced real
growth with the liberalisation of guidelines that govern unit trust and asset
management companies in Malaysia.
Page|18
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
AMC & UTMC
ASSET
MANAGEMENT
COMPANIES
CMSL – Fund
Management
UNIT TRUST
MANAGEMENT
COMPANIES
CMSL – Dealing in
Securities (restricted to
Unit Trust)
Dual Licensed
Holder
Page|19
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Asset Management Companies (“AMC”)
 As at 31 December 2014, there are 77 licensed asset / fund management
companies of which 20 are also Islamic fund management companies.
(Source: Securities Commission’s website)
 On 6 November 1996, the Malaysian Association of Asset Managers
(MAAM) was formally established under the Societies Act, 1966 with the
invitation of four established asset management companies to become
founding members, along with the merchant banks who were involved in
asset management operations. (Source : MAAM website)
 Historically, fund management services were offered by merchant banks.
In 1989 RHB Investment Management Sdn Bhd was one of the 1st few
private asset management companies to be set up.
 Typical services provided by an asset management company are
professional fund management services including portfolio administration.
Page|20
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Unit Trust Management Companies (“UTMC”)

As at 31 December 2014, there are 36 licensed unit trust management companies. (Source:
Securities Commission’s website)

UTMC are members of the Federation of Investment Managers Malaysia (“FIMM”).

As of 28 February 2011, FIMM has been awarded the status of a Self Regulatory
Organisation (“SRO”) by the Securities Commission.

FIMM also oversees the registration of unit trust funds for sale by UTMCs.

As an SRO, FIMM also overseas the distribution channels for unit trust funds. These
channels can include the following:

"Unit Trust Consultant" or "UTC“, an individual who is duly registered with the FIMM to
market and distribute unit trust funds.

“Institutional Unit Trust Adviser" or "IUTA“, an institution or organisation or a
corporation that is licensed by the SC for the purpose of carrying out dealing in securities
restricted to unit trusts and is duly registered with the FIMM to market and distribute
unit trust funds.

"Corporate Unit Trust Adviser" or "CUTA“, an institution or organisation or a corporation
that is licensed by the Securities Commission for the purpose of carrying out the
regulated activities of financial planning and dealing in securities restricted to unit trusts
and is duly registered with the FIMM to market and distribute unit trust funds.
Page|21
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Legal And Regulatory Requirements
Both AMCs and UTMCs are governed by the Capital Markets Services Act 2007 (CMSA) which
is regulated by the Securities Commission Malaysia.
An AMC carries a Capital Market Services License (CMSL) to conduct fund management while
a UTMC carries a CMSL in dealing in securities (restricted to unit trust business).
Individuals that are carrying out the regulated activities on behalf of the company are
required to have the Capital Markets Service Representative’s Licence (CMSRL).
Both licences are issued by the Securities Commission Malaysia.
At least one (1) director of the company is required to be a CMSRL holder.
Page|22
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Legal And Regulatory Requirements (Cont’d)
Dealing in securities
Dealing in securities
(restricted to unit
trusts)
Dealing in
Derivatives
Regulated
Activities
Financial planning
Investment advice
Advice on corporate
finance
Fund management
Page|23
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Regulated Activities
Regulated Activities
Asset Management
Company
Unit Trust Management
Company
Dealing in Securities
-
-
Dealing in Securities
(Restricted to Unit Trust)


Dealing in Derivatives
-
-
Advice on Corporate
Finance
-
-
Fund Management


Investment Advice

-
Financial Planning
-
-
Page|24
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Legal And Regulatory Requirements (Cont’d)
Establishment Requirements
Specific Requirements
Asset Management
Company
Unit Trust Management
Company
Investment Advisory
Company
Minimum Paid Up Capital
RM5.0 mil
RM5.0 mil
RM500,000
Minimum Share Holders
Fund
RM2.0 mil
(maintained at all times)
RM10.0 mil
(maintained at all times)
N/A
Minimum Net Tangible
Asset
N/A
N/A
RM50,000 (maintained at all
times)
Minimum Licensed
Director
One (1) CMSRL holder with
10 years experience in the
regulated activity
Registered with FIMM with
minimum 10 years of
relevant experience
One (1) CMSRL holder with
10 years experience in the
regulated activity
Composition of Board of
Directors
The board of directors should comprise at least two (2)
independent members, while maintaining at least one-third
(1/3) independent members at all times.
CMSRL Holders
At least two (2) CMSRL
holders for each regulated
activity.
At least two (2) individuals
registered with FiMM
At least two (2) CMSRL
holders for each regulated
activity.
N/A
Comprise of at least two (2)
independent members, while
maintaining at least onethird (1/3) independent
members at all times.
N/A
Investment Committee
N/A
Page|25
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Typical Organization Structure
AMC & UTMC / Investment Management
Board of Directors
Investment
Committee
Compliance
Department
Shariah Adviser *
MD / CEO
Marketing / Client
Servicing
Department
Fund & Portfolio
Administration
Department
Operations /
Finance
Department
Fund Managers
Marketing
Portfolio
Administration
General
Operations
Analysts
Client Servicing
Fund Operations
Finance
Central Dealers
Customer Service
Fund Accounting
Risk Management
Distribution (UTC,
IUTA & CUTA)
Unit Holder
Services
Information
Technology
Investment
Department
Product
Development
Department
Internal Audit
Department
Human Resource
Applicable for AMC and UTMC
Applicable for UTMC only
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
Applicable for AMC only
Page|26
© Copyright SIDC
Duties & Responsibilities Of The Board
 The Board is responsible for governing the administration of the Company
and for exercising all such powers pursuant to the Articles of Association of
the Company. In general, the Board is responsible for :
 Providing strategic leadership to the Company;
 Reviewing, approving and monitoring the implementation of the
Company’s strategic business plans and policies;
 Ensuring the Company maintains an effective system of internal controls
and is able to identify and manage principal risks resulting in efficiency in
operations and a stable financial environment;
 Acting as a guardian of the Company’s corporate values and ethical
principles in parallel with the goal to enhance shareholders’ value;
 Monitoring as well as evaluating the performance of the Company to
ensure that the performance criteria remains dynamic; and
 Ensuring the formulation of a succession plan for the Company for longterm business continuity.
Page|27
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Key Responsibilities of a Director of a CMSL
•
A director is responsible for compliance with all laws, regulations & guideline.
therefore at all times must ensure that
 Regulated activities are only carried out by licensed persons
 At least 1 director is a CMSRL holder= Executive Director
 Compliance with the 11 principles , securities law, regulations and
relevant guidelines
 The company has an established, maintained and effective internal
control framework- it must be able to detect abusive investment practice,
conflict of interest if any in proprietary trades, and all other transactions (
employee & client)
 The company conduct at least an annual review in internal controls
 The company reports to the shareholder any findings from reviews
 Written policies and procedure are in place
 There is a written BCP plan
 Policies and procedure on staff responsibility
 Management is competent and supervised by Board
Page|28
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Key Responsibilities of a Director (Cont’d)
•
A director is responsible for compliance with all laws, regulations &
guidelines, therefore at all times must ensure that
 There is adequate financial, human and other resources suitable for
business needs
 Proper record system
 At least 1 compliance officer in place
 Matters raised by compliance officer raised and addressed
 Safe guarding of clients assets
 Timely disclosure of information to clients
Page|29
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Investment Committee
 The Investment Committee is responsible for the formulation of the
Investment Objective, the Investment Policies and the Investment Strategy
for the Fund. For UTMC, it has broad discretionary authority over the
investments of the Fund. The Investment Committee also overseas the
activities of the Manager which is responsible for research, securities
recommendation and asset allocation.
 The Investment Committee has the responsibility to decide and approve
the following: Asset allocation;
 Schedule of securities for purchase and disposal;
 Risk exposure, e.g. country and specific market risks; and
 Schedule of income distribution to Unitholders.
Page|30
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Islamic Fund Management Company – Shariah Adviser
 The Shariah Adviser functions independently of the Manager and has
responsibility only to the Fund’s Unitholders.
 The Shariah Adviser will review the investments of the Shariah Funds and
advise the Manager on the conformance of the investments, operations and
marketing aspects of all the Funds with the Shariah principles.
 The duties and responsibilities of the Shariah Adviser are as follows: Ensure that the Fund is managed and administered in accordance with
Shariah principles;
 Consult with the Securities Commission where there is any ambiguity or
uncertainty as to an investment, instrument, system, procedure and/or
process;
 Provide expertise and guidance in all matters relating to Shariah
principles;
 Act with due care, skill and diligence in carrying out its duties and
responsibilities; and
 Scrutinize the Fund’s compliance report and investment transaction
reports to ensure that the Fund’s investments are in line with Shariah
principles.
Page|31
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Competitive Landscape
Shifting Trends & Competitive Changes In Landscape
Human
Capital
Optimizing
Government
Incentive
Client Profile
versus Risk
Appetite
Competitive
Landscape
Product
Innovation
versus Time
to Market
Tightening of
Margin
Page|32
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Opportunities Abound
Product Innovation –
Sophistication/ Technology
Geographic Expansion – ASEAN
Passport / MRA Initiative
Diversification of Asset
Classes
Distribution & Market Reach
Innovation
Strategic Alliances
Market Segmentation – PRS /
HNW
Page|33
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
UPDATES ON LATEST CHANGES
Page|34
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Latest Changes Regulations / Guidelines - 1
GUIDELINE
Licensing
Handbook
UPDATE
CHANGE
June 30, 2014
Introduction of the new
outsourcing
guidelines
under Chapter 10 of the
Licensing
Handbook
replacing the Guidelines on
Outsourcing for Capital
Market Intermediaries
Material
outsourcing
arrangement no longer requires
approval from SC. Instead, CMSL
holder must notify SC within 2
weeks upon signing service level
agreement.
December 4,
2014
Amendment of Section 6.05
– Submission of Anniversary
Reporting for Authorisation
of Activity
CMSL holders are now required to
submit a semi-annual Fit and
Proper Compliance Report (Form
6A) on the fit and proper standing
of its licensed representatives
whose anniversary date fall due
within the reporting period within
7 days of reporting period
This replaces the previous
practice where Form 6 has to
submitted on each individual’s
licence anniversary date.
Page|35
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Latest Changes Regulations / Guidelines - 2
GUIDELINE
Licensing
Handbook
UPDATE
February 2015
CHANGE
Changes
in
minimum
qualification requirements
for CMSRL in financial
planning under Table 3, 4
and 7.
Review
of
the
minimum
qualification requirements for
the purpose of obtaining a
Capital
Markets
Services
Representative’s Licence (CMSRL)
for Financial Planning by Financial
Planning Association of Malaysia
(FPAM)
The approved modules are no
known as:
Module 1 – Foundation
Financial Planning;
in
Module 3 – Investment Planning
and Retirement Planning; and
Module 4 – Financial Plan
Construction and Professional
Responsibilities (Familiarisation
Programme).
Page|36
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Latest Changes Regulations / Guidelines - 3
GUIDELINE
Licensing Handbook
UPDATE
April 1, 2015
CHANGE
Added the requirement for
Capital Market Director
Programme
(CMDP)
in
Licensing Handbook and the
FAQ for CMDP.
4.02 Requirement for director to
attend Capital Market Director
Programme (CMDP)
- Effective from 1st May 2015,
directors of CMSL holders for
dealing in securities, dealing in
derivatives and fund management
in
relation
to
portfolio
management must complete the
CMDP.
- Newly appointed directors must
complete CMDP within 6 months
from
thedate
of
their
appointment. Directors who were
appointed prior to 1st May 2015
must complete the CMDP within
the timeline specified by the SC.
Page|37
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Latest Changes Regulations / Guidelines - 4
GUIDELINE
UPDATE
CHANGE
Guidelines on
Compliance
Function for Fund
Management
Companies
25 April 2014
Addition of new section 1.04 New clause stating the Guidelines
under
Chapter
1 are in addition to and not in
Introduction
derogation of any other guidelines
issued by the SC or any
requirements as provided for
under the securities laws and
must be read with:
 Guidelines on Islamic Fund
Management;
AML/CFT
guidelines; and
 Licensing Handbook
Removal of Chapter 13 – AML/CFT guidelines are provided
Anti Money Laundering
under the new Guidelines on
Prevention of Money Laundering
& Terrorism Financing for Capital
Market Intermediaries issued on
15 January 2014
Page|38
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Latest Changes Regulations / Guidelines - 5
GUIDELINE
Guidelines on
Prevention of
Money
Laundering &
Terrorism
Financing for
Capital Market
Intermediaries
UPDATE
CHANGE
15 January 2014
This is a new guidelines
on AML/CFT issued on
15 January 2014
replacing the the
Guidelines on
Prevention of Money
Laundering & Terrorism
Financing for Capital
Market Intermediaries
issued on 31 March
2004.
The new Guidelines provide for a more
enhanced framework for the purpose of
complying with the updated international
standards.The significant enhancements can
be found in the following provisions:




-
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
Paragraph 7 : Risk Based Approach
Application
Paragraph 8 : Customer Due Diligence
Paragraph 8.5 : Politically Exposed Person
Requirement for a risk management
system to identify PEP (Commonly used:
World Check, AML Solution)
Paragraph 8.6 : High Risk Countries
Enhanced CDD measures for business
relationship from identified high risk
countries
Paragraph 8.7 : Third Party Reliance
A reporting institution may rely on a third
party to conduct CDD at the point of
establishing a business relationship.
However, the ultimate responsibility and
accountability of such CDD measures shall
remain with the reporting institution
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© Copyright SIDC
Latest Changes Regulations / Guidelines - 6
GUIDELINE
Guidelines on Unit
Trust Funds
UPDATE
25 August
2014
CHANGE
Chapter 1 –
Introduction
Amended to state the basis where the SC may grant an
exemption or variation to any requirement under the
GUTF.
Section 1.04
Section 1.08
Inserted a new requirement to require any person
intending to offer a unit trust fund under the ACMF
Retail MoU framework to observe and ensure
compliance with the Standards of Qualifying CIS.
ACMF – ASEAN Capital Markets Forum
Qualifying CIS - means a unit trust fund–
(a)constituted or established in Malaysia, which has
been authorised by the SC for offer to the public in
Malaysia; and
(b) has been assessed by the SC as suitable, pursuant
to the Standards of Qualifying CIS, to apply to a host
regulator for cross-border offering to the public in a
host jurisdiction pursuant to the ACMF Retail MoU.
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Latest Changes Regulations / Guidelines - 7
GUIDELINE
UPDATE
CHANGE
Chapter 2 - Definitions
2.01
Amended due to the following
reasons:
(a) To insert new terms
associated with the ACMF Retail
MoU framework;
(b) To provide clarity on certain
terms used in GUTF; and
(c) Consequential amendments
due to the amendments to the
law (e.g. CMSA, Financial Services
Act 2013, Islamic Financial
Services Act 2013, etc).
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Latest Changes Regulations / Guidelines - 8
GUIDELINE
UPDATE
CHANGE
Chapter 3 –
The
Management
Company
Amended to reflect the current liberalisation as announced by the Prime
Minister on 9 June 2014 at the 2014 Invest Malaysia conference.
3.03
Previous provision
Revised provision
3.04 A management company must–
3.03 A management company must–
a) be an entity incorporated in
a) be an entity incorporated in
Malaysia;
Malaysia; and
b) have a minimum of 30%
b) (b) have a minimum shareholders’
Bumiputera equity;
funds of RM10 million at all times.
c) not have more than 49% foreign
equity; and
d) have a minimum shareholders’
funds of RM10 million at all
times.
3.05 Clauses 3.04(b) and (c) do not
apply to an Islamic fund management
company under the Special Scheme.
Page|42
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Latest Changes Regulations / Guidelines - 9
GUIDELINE
UPDATE
CHANGE
Chapter 4 –
The Trustee
Amended to clarify and enhance the requirement relating to the
registration of a fund’s property.
Section
4.07(c)
Previous provision
Revised provision
4.08 A trustee should ensure 4.07 A trustee must ensure that a fund’s
that a fund’s property is–
property is–
a) clearly identified as the
a) clearly identified as the fund’s
fund’s property;
property;
b) held separately from any
b) held separately from any other
other asset/property held
asset/property held by or
by or entrusted to the
entrusted to the trustee; and
trustee; and
c) registered–
c) registered in the name of,
(i) in the name of the trustee;
or to the order, of the
or
fund.
(ii) where the custodial
function is delegated, in the
name of the custodian to the
order of the trustee.
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Latest Changes Regulations / Guidelines - 10
GUIDELINE
UPDATE
CHANGE
Chapter 5- Delegation and
Outsourcing
Section 5.06
Section 5.12A
Amended to provide clarity as the
SC approves the delegation of
fund management function of a
management company.
(previously
is
states
any
delegation of fund management
company’s function requires SC
approval, now only restricted
fund management function)
Inserted a new requirement to
provide clarity that where the
trustee delegates the custodial
function of assets outside
Malaysia, this fee may be charged
to the fund.
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Latest Changes Regulations / Guidelines - 11
GUIDELINE
UPDATE
CHANGE
Chapter 8:
Investments of the
Fund
Removal of section
8.08 in previous
guidelines
Section 8.10
Section 8.15(d)
Removed as the term “transferable securities” is now defined under clause
2.01 of the revised guidelines
Amended to provide clarity as funds are only allowed to invest in foreign
countries where the regulators are ordinary and associate members of the
IOSCO.
Amended to provide clarity on investment in real estate investment trusts or
property funds.
Previous provision
8.16 The target fund must–
(d) operate on the principle of
prudent spread of risk and its
investments do not diverge from
the general investment
principles of these guidelines.
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
Revised provision
8.15 The target fund must–
(d) where the target fund is a fund other
than a real estate
investment trust or property fund, operate
on the principle of
prudent spread of risk and its investments
must not diverge
from the general investment principles of
these Guidelines.
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© Copyright SIDC
Latest Changes Regulations / Guidelines - 12
GUIDELINE
UPDATE
CHANGE
Chapter 9: Charges, Fees,
and Expenses
9.10(c)
Amended to ensure existing unit
holders will be notified of the
increase in fees at least 90 days
in advance of such increase in
fees.
(previously no specified timeline
to notify unit holders)
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Latest Changes Regulations / Guidelines - 13
GUIDELINE
UPDATE
CHANGE
Chapter 13:
Applications, Notifications
and Reporting to the
Securities Commission
Malaysia
Section 13.02
Replaced with a new paragraph
13.02 to reflect ACMF Retail MoU
framework. (for cross border
selling)
Removal of sections 13.09(f) Removed the original suband 13.09(i) in previous
paragraphs 13.09(f) and (i) that
guidelines
requires the notification to the SC
on investment in foreign market
and unit split exercise.
Section 13.10(a)
Amended for clarity and removed
the reference to “management
company” in light of the issuance
of Technical Note No. 1/2014 on
19 August 2014.
Page|47
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Latest Changes Regulations / Guidelines - 14
GUIDELINE
UPDATE
CHANGE
Schedule E –
Submission of
Applications,
Notifications and
Documents
(1)(c): Application to
Act as
Management
Company of a Fund –
new Appendix IV
(1)(c): Application to
Act as Trustee to a
Fund – new Appendix
III
Replaced with a new paragraph (8)
to clarify that the SC may consider
varying the terms and conditions of
approval provided that justifiable
grounds are submitted to the SC.
Amended
to
include
the
requirement for application to be
assessed as suitable to be a
Qualifying CIS, pursuant to the
Standards of Qualifying CIS.
Page|48
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Latest Changes Regulations / Guidelines - 15
GUIDELINE
UPDATE
CHANGE
Schedule E: Appendix I(a) –
Submission of Applications for
Approval/Registration
(1)(c): Application to Act as
Management Company of a Fund –
new Appendix IV
Inserted a new item under the Appendix to
incorporate a new requirement for
management company of a Qualifying CIS.
(1)(c): Application to Act as Trustee
to a Fund – new Appendix III
Inserted a new item under the Appendix to
incorporate a new requirement for trustee
of a Qualifying CIS.
(2)(b): Application to Register or
Renew Registration for a Trustee –
Appendix II
Amended due to the following:
(a) To provide clarity that the requirement
to submit an undertaking by the trustee
should not be limited to before the
commencement of unit trust fund-related
business only; and
(b) To require, an undertaking by a trustee
of a Qualifying CIS that it will comply with
the Standards of Qualifying CIS.
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Latest Changes Regulations / Guidelines - 16
GUIDELINE
UPDATE
CHANGE
Schedule E: Appendix I(b) –
Notification and Submission
of Documents
Removal of table under (1):
Notification of New
Class(es) of Units
Removed as such notification is
no longer required.
(a)(ii): DECLARATION BY THE
APPLICANT IN RELATION TO
THE
ESTABLISHMENT OF A FUND
TO BE
DEEMED AS A QUALIFYING
CIS
Inserted a new declaration letter
for applicant in relation to the
establishment of a fund to be
deemed as a Qualifying CIS.
Page|50
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
RELATIONSHIPS BETWEEN FM/UTMC
AND CLIENTS
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Manager –UTMC/FM
UTMC
• Make reports to the trustee regarding the purchase, sale and management of the
investments .
• Promote and distribute or sell units in UTS
• Buy back units from those unit holders who wish to dispose of units
• Execution of investment decisions to raise liquidity for fund//portfolio
• Keep the accounting records of portfolio/UTS
• Calculate unit selling and repurchase prices, and to determine the amount of
distributions payable to unit holders if UTS
• Maintain a register of unit holders in each UTS showing the units held by each unit holder
FM
• Pitching of investment management services to clients wishing to embark on a
discretionary mandate relationship
• Keep the accounting records of portfolio/UTS
• Execution of investment decisions including to raise liquidity for fund//portfolio
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Trustee- UTMC/FM
•
Maintains custody of the assets of the fund /portfolio.
•
Ensures funds are invested in accordance with Trust Deed if UTS.
•
Supervises the operations of UTS to ensure that its objectives are followed by UTMC
and that the interests of the unit holders are protected.
•
Can remove one that fails to manage effectively and in accordance with the deed.
•
Approves, monitors all financial transactions if UTS.
•
Collects all income entitlements on investments held on behalf of investors.
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Unitholder-UTMC
•
Responsible for the fees earned by UTMC and the trustee.
•
Hold units.
•
The value of a unit is determined by using a formula set out in the deed, which is
based on dividing the market value of the net assets of the UTS by the number of
units currently in circulation.
Page|54
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Deed-UTMC
•
It is a legal document that governs the operation of the Unit Trust.
•
The Unit holders, Fund Managers and Trustees are legally bound by it.
•
It spells out :
 Rights and duties of the UTMC, Trustee and Unit holder
 Maximum fees payable
 Describe the investments in which UTS can be invested
 Collection and distribution of income
 Valuation of units
 Determine price of units to be sold to investors, and bought from them, by
UTMC to be calculated
Page|55
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Prospectus-UTMC
•
It is required by law to provide potential and existing investors with all
necessary information to make an informed decision.
•
Must be registered with the Securities Commission.
•
Prospectus to be updated every 12 months.
•
No sale of units can be made without a prospectus.
•
Agent should go thru’ the prospectus with investor and explain fees and
charges, unit holder's rights, etc. (best way is through the Key Data).
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Agents of UTMC & Trustee
•
A trustee may appoint a sub-custodian to hold UTS assets on its behalf.
•
UTMC may appoint fund managers, asset consultants, managers of real estate,
and other specialists to assist in its role.
•
The trustee and UTMC are responsible for the actions of any agent they appoint.
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Duties To Client
DUTY OF
LOYALTY
DUTY TO
ACT IN
GOOD FAITH
DUTY TO
AVOID
CONFLICT
OF INTEREST
Responsibilities of a FM to a Client
•
•
•
•
•
•
•
•
•
•
•
•
Fees, charges and all remuneration must be fair, reasonable & transparent
Valuations provided on agreed upon basis
Statements & scheduled duly provided
Confidentiality of information is in place governed by policies and procedure
Establishment of a complaints register
Prudent Investor Rule
Conflicts of interest Disclosures
Personal Account trading Policies
Trade Crossings between clients portfolios
Fair allocation of Trade
Soft dollar dealings Policies
Dealing Polices when through Related Party Stockbrokers
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Client Relationship
•
Client relationships are typically through funds invested or portfolios directly
managed.
•
If funds, FM’s observe governance and oversight through documents such as
Prospectuses or Information memorandum- depending if the client is retail or
wholesale.
•
If portfolios- governance and oversight will be guided by documents such as
Investment Management Agreements.
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
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Client Relationship - Prospectuses
•
•
Typically prospectuses should incorporate the following to comply with all regulatory
and legal requirements.
Prospectuses should include, at a minimum:a) clients’ risk profiles and investment objectives including any investment limitations,
restrictions or instructions;
b) notification of any significant changes to the investment policy or investment
recommendation;
c) clear authorisation from the clients for discretionary mandate;
d) scope of services that will be provided by the fund management company
including frequency of written statements and reports relating to the clients’
portfolios;
e) fees and charges to be paid by the clients or any other remuneration received by
the fund management company from any other person in relation to services
provided to the clients;
f) details of custodial arrangement;
g) basis of valuation to be used for any type of investments products;
h) terms and conditions relating to soft commission, where applicable;
i) liability of fund management company where there is a breach of the IMA
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Client Relationship – Investment Management
Agreement
•
For each portfolio, FM shall have an Investment Management Agreement (“IMA”) in
place, which complies, with all regulatory and legal requirements.
• IMAs should include, at a minimum:a) clients’ risk profiles and investment objectives including any investment limitations,
restrictions or instructions;
b) notification of any significant changes to the investment policy or investment
recommendation;
c) clear authorisation from the clients when for discretionary mandate;
d) scope of services that will be provided by the fund management company including
frequency of written statements and reports relating to the clients’ portfolios;
e) fees and charges to be paid by the clients or any other remuneration received by
the fund management company from any other person in relation to services
provided to the clients;
f) details of custodial arrangement;
g) basis of valuation to be used for any type of investments products;
h) terms and conditions relating to soft commission, where applicable;
i) liability of fund management company where there is a breach of the IMA
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
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Client Relationship – Investment Management
Agreement (Cont’d)
•
Sets out clients instructions of the IMA with regards to e.g. asset allocation, limits and
benchmark
•
Can include investment style and approach
•
Type of mandate e.g. balanced or an asset class
•
Ranges for asset allocation
•
Authorised investments with constraints
•
Counterparty details
•
Other relevant policies
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
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Investments
Generally, a UT may invest in
• Equities, debentures and warrants
• Cash, deposits and money market instruments
• Units/shares in collective investment schemes
• Derivatives.
• Unlisted securities (exclude approved to be listed shares, debentures & structured
products) <=10% of NAV
• Foreign investments - limited to markets where the regulatory authority is a member of
IOSCO
Discretionary portfolios are managed based on client sanctions
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Higher
Investments – Risk vs. Return
Equity funds
Return
Balanced funds
Lower
Sukuk funds
Money market funds
Lower
Higher
Risk
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Investments – Portfolio Management
A suitable investment policy must be established :
• Be fair & equitable in allocation of orders
• Not to misuse information/participate in insider’s trading
-churning/front running is prohibited
• Client’s interest take precedence in transaction
• Disclose conflict of interest
• Provide sufficient research
• Take all effort in identifying, managing & mitigating risks
• Execute Investment Management Agreement (IMA) with clients when
applicable
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
INVESTMENTS – Trading PRACTICES
•
•
•
•
•
•
•
•
•
•
•
Ensure “best execution” of trades for clients
< 50% of trades with any broker annually
“Arm’s length” transactions with related parties
The transaction are within client’s mandate and limits
Ensure sufficient monies or properties to meet the obligations of the transaction.
Cross trades prohibited for staff/proprietary and client’s accounts; unless consented to.
No ‘soft’ commission allowable for trades, unless declared
Trade execution and confirmation checks are normally employed through an integrated
system.
Preferably, a straight-through process should be employed for front (dealing/ keying of
orders by fund managers), middle (compliance, trade confirmation, settlements) and
back office operations (back office support & report generation).
This process should be independent of each other and executed by different group of
people.
A pre and post trade compliance monitoring should also be in place.
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Investments – Cross Trades
•
•
•
•
Only in the best interests of both clients
Transactions are executed on an arm’s length and fair value basis
Document reason's prior to execution
Activity is identified to both clients in their respective periodic in transaction
reports or statements
• Transaction is executed through a dealer/financial institution
• Written prior authorization obtained in advance from clients
 Authorization can be incorporated in the IMA
 For UT, authorization from unit holders is not required but the policy on soft
commission must be disclosed in prospectus.
Page|67
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
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Performance Benchmarking And Evaluation
•
•
•
•
•
•
•
An aspect of the Code Of Ethics
Ensures funds can be compared on an apples-to-apples basis with and among each
other.
 To minimize “jazz-up” a report
e.g. :Global Investment Performance Standards (GIPS)
Ethical standards that apply to the way investment performance is presented to
potential and existing clients
Covers calculation of returns, presentations & disclosures
Voluntary and are not forced-upon the companies by the regulators
Must be independently verified for purposes of marketing or reporting
In Malaysia, Morningstar Research Pte Ltd and Lipper provide independent sources
for comparative fund data and analysis.
Page|68
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
KEY INTERNAL CONTROLS
 Risk Management
 Internal Audit
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Key Internal Controls
What You Must Have, What You Must Know
A Risk Management Framework must include and be :
• Robust enough for continuous identification, assessment and monitoring of
company risk
• Capable of monitoring and managing risks assumed on behalf of client
• Mitigating actions
• Established for functions outsourced: to perform due diligence on key risk areas and
mitigation strategies
• Reviews of outsourced functions
• Have ability to identify new risks that arise
• Cultivate risk awareness culture in the Company and empowers Employee with the
ability to identify and manage risks whenever they arise.
FM must conduct at least an annual review of the Risk Management Framework
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Key Internal Controls
Eg: Structure For The Implementation Of Risk Management
Framework
•
BOD is responsible, inter alia, for ensuring
establishment of Risk Management
Framework as well as an effective internal
audit function.
•
Internal Audit Department provides
independent
assurance
regarding
effectiveness of implementation of Risk
Management Framework.
•
RMD provides central resource for
developing tools and methodologies for
identification, assessment, quantification,
aggregation, monitoring and control of
risks. RMD can be a separate function
independent of business and support units
of FM
Board of
Directors
Internal Audit
Department
Executive
Director
Risk Management
Department
Risk Agent
Page|71
SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Business Continuity Plan
•
FM must ensure that critical operations can continue in the event of
interruptions.
•
Must include Annual Review to test effectiveness.
•
The plan must be capable of dealing with interruptions in outsourced functions
also
PLAN MUST INCLUDE ANNUAL REVIEW AND REPORT TO BOD
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
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Internal Audit
•
The BOD is encouraged to establish an internal audit function alongside a
framework.
•
The scope can be outsourced, subject to Outsourcing Guidelines.
•
Albeit, BOD must ensure that the Framework incorporates
 Planning, control and recording of all work is done;
 Recording of all findings and recommendations; and
 All concluded work is to be accompanied with a report.
•
Reports must be reviewed and acted upon in the interest of client at all times
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Safeguarding Of Client’s Assets
•
Governed by section 120 to 125 of the CMSA- “Treatment of Client’s Assets in
Respect of Fund Management”.
•
FM is responsible for ensuring compliance with the relevant provisions of the CMSA
and other regulations, regardless of whether the monies or property belonging to
clients is received in or outside Malaysia.
•
All clients’ monies and properties shall be placed in trust account or CDS account that
is maintained by the custodian (as defined by Sec 121 of CMSA) and duly appointed
by the client. All properties shall be registered in the name of the client (or in
custodian name, with the express approval of the client) and are separately
identifiable from FM’s account.
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Safeguarding Of Client’s Assets –
Segregation of Functions
•
It is key that assets of an FM and its clients are maintained and recorded
separately.
•
Managing of proprietary assets must also be managed by a separate CMSRL.
•
Any co-mingling is prohibited.
•
Transactions – instructions for any movement of assets CANNOT be via a third
party.
•
Client assets must be kept separate via a custodian/trust account , as approved
by the client.
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Safeguarding of Client’s Assets –
Recordkeeping
•
Accurate & Comprehensive.
•
Reconciliation must be consistent.
•
Access to external parties e.g. auditors.
•
Aligned to approved standards.
•
Retention as per Law and Guidelines- at least 7 years for documents/2 years for
phone recordings.
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Safeguarding Of Client’s Assets –
Recordkeeping
•
FM shall ensure that any investments which it buys or holds for a client in the course of
its business are properly registered in the client’s name or with the consent of the client
or, in the name of an eligible nominee or in the name of a Fund that has been registered
with the SC and that such assets are kept in a segregated account and could not be
viewed as part of its corporate assets .
• FM shall arrange for the safe-keeping of any documents of title relating to those
investments.
• A Custodian appointed with client’s consent should be either: Trust Companies incorporated under the Trust Company Act 1949
 Amanah Raya Berhad
 Subsidiary companies providing nominee services that are 100% directly owned by
licensed banks, finance companies, merchant banks or stock broking companies.
 Stock broking companies.
 Any other person as approved by the SC.
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
GOVERNANCE - OVERSIGHT
•
•
•
•
Compliance
Disclosure Of Interest
Conflicts
Sales Practices
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
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Compliance
•
Definition of compliance:
“Systems or departments at companies and public agencies to ensure that personnel
are aware of and take steps to comply with relevant laws and regulations”
Examples: Legal compliance, due diligence & risk management
•
Guidelines on Compliance Function for Fund Managers – assist FMs in their efforts to
substantially strengthen the internal controls and elevate the overall standards of ethical
and prudential conduct in the investment management industry.
•
Contribute towards enhancing investor protection and promoting the levels of market
integrity.
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
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Compliance Officer – Responsibilities
•
•
•
•
•
•
•
•
•
•
•
A Compliance Officer (CO) is key liaison to SC & reports to the BOD
Establishes Compliance programme, Plans and Manuals
Establish, Maintain & implement procedures to adhere to laws, regulations and Guidelines
Detects breaches; reporting to the BOD and relevant Committees at least quarterly
Communicates and disseminates to Board, employees
Monitoring of licensed activities and licensed persons
Training and education of employees
Coordinating Compliance efforts
Oversight on investment and operations administrations matters e.g. client account
opening
Submission of reports to SC
For IFMC’s- the CO also must ensure adherence to Guidelines on Islamic Fund
management
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
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Compliance Officer – Other Responsibilities
•
As part of best practice and to be in compliance with the Anti-Money
Laundering Act and Counter Financing of Terrorism (“AMLA CFT”) in the capital
market, a FM must implement the recommendations of the FATF which include
policies on “know your client” (“KYC”) and procedures on client due diligence
(“CDD”).
•
In addition, KYC would provide a guide to FM on the risk profile of each investor
that is needed to be taken into account when recommending a suitable
investment product to the respective investors.
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
© Copyright SIDC
Compliance Committee
•
•
•
•
•
•
•
•
Setting scope of investigation
Review results of investigation
Securing Board’s approval to proposed compliance system
Approve final form compliance system and allocating responsibilities and
authorities
Devise supervisory programme
Monitor installation and implementation of compliance system
Coordinate all parties
Review reports of each compliance failure, resulting action and discipline imposes
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Compliance Tools
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•
•
•
•
•
•
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Board’s commitment and CEO’s endorsement
Proper documents of compliance programme and up-to-date manuals and procedures
Education and training of all directors and employees on compliance
Legal audit
Identification and controls of high risk areas
An effective system for complaints monitoring and resolution
Prompt changes
Maintenance of detailed and complete records relating to compliance
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Compliance Officer – Summary of Scheduled
Reporting Tasks
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Reporting to the Securities Commission – monthly, half yearly, annual
•
Compliance Report to BOD – at all BOD meetings, at least on quarterly basis
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Compliance Report to Investment Committee
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IFMC - Compliance Report to Shariah Adviser
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IFMC - Reporting to Shariah Risk – monthly attestation of Shariah compliance
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
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Disclosure of Interest / Conflict of Interest
•
•
•
•
•
•
•
•
FM must have Policies & Procedure for for company, BOD, investment committee
member, employees to disclose all holdings of shares, securities and alternative products
in the capital market space.
Timeliness- upon joining and annually after
FM must ensure that client interest is not superseded
Records of disclosure must be kept.
Proprietary holdings must be disclosed
BOD/ICM members/Employees must also declare holdings held by nominees or related
parties
Transactions of any ED must be sanctioned by another Director or the CO
Transactions of any employee must be sanctioned by a Director or the CO
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
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Disclosure of Interest / Conflict of Interest
•
A FM must establish and maintain a Policy and Procedure on receipt of Gift/Benefits.
•
A FM must also maintain a Gift Register.
•
A FM must establish and maintain a Policy and Procedure on receipt of soft
commission/rebates, allowable only if sanctioned by client and for the use of in the
interest of the client.
•
A FM must also maintain a similar Register and disclose details to clients in scheduled
reporting's/communication.
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
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Sales Practice Guidelines

This Guideline applies to all unlisted capital market products. except shares, debentures
and Sukuk.
 Scope of coverage is for both Product issuer and distributor
 Fair treatment of investors
 Product Highlight Sheet
 Suitability Assessment
 If issuer is a foreign entity and distributed by local entity, the BOD of the local
entity is responsible.
The applicability is guided by category of investors ( see next slide)
Responsibilities of Directors
 To ensure that the product distributor/issuer is responsible for ensuring that FM and its
employees comply with Guidelines
 Any breaches , may result in not only action under the law but recall or cessation of
product and will affect the assessment of the licesed person
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Applicability of Categories
CATEGORY OF INVESTOR
PRODUCT HIGHLIGHT
SHEET
SUITABILITY
ASSESSMENT


 (unless opt out)
 (unless opt out)
High Net Worth Individual


Retail Investor


Accredited Investor
High Net Worth Entity
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Fair Treatment by Product Issuer
Responsibilities of the Issuer BOD
• Product development incorporates investor related issues
• Suitability of product vis-à-vis the target investor group
• Fees to be charged reasonable and fair/where applicable Shariah Compliant
• Information to be provided will be reasonable and sufficient for informed decision
• Changes are kept informed
• Responsible to ensure that P & P is there for promotion,marketing and sale/distribution will
not misrepresent/false/contain material omission
• Channel for investor complaints are well stated/adequately informed
• Online sales are adequately represented that it is without recommendation
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Fair Treatment by Product Distributor
Responsibilities of the Distributor’s Board Of Directors
•
Ensure that the distributor has Policies & Procedures (P&P) in the interest of
investors for promotion/marketing/sale/distribution of products
 P&P must outline criteria for employees to act in honest/professional
manner
 P&P must ensure proper record keeping of Suitability assessment and
Product Highlight Sheet .
 Remuneration of sales personnel must not result in product pushing
 Continued Up skilling of sales personnel/agents
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Product Highlight Sheet by Product Distributor
•
•
•
•
•
•
•
•
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Must be clear and concise for investor to make informed decision
Must contain minimum salient features and fair comparison
Must contain key risks associated
Must contain all relevant costs involved e.g. fees/charges
Must contain valuations basis/exit basis
Must contain contact information
Must be clear and simple language
Must be clearly communicated to a potential investor of the availability of the PHS
All PHS must have Responsibility Statements / Statement of Disclaimer
PHS is prepared by the Product Issuer
• If issuer is a foreign entity and distributed by local entity, the BOD of the local entity is
responsible.
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Suitability Assessment by Product Distributor
•
An exercise to gather information to form reasonable basis before recommending product
• Undertaken at point of assessment
• Subject to the relevant guidelines on persons exempted (Schedule 1 of Guidelines)
• Areas of focus is
 Know your Investor
 Investor Risk profile and Needs
 Investors Investment knowledge
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Market Misconduct
Insider Trading/Price Sensitive Information
Insider Information and Other Regulations
• FM must have a very strict rule with regards to the usage of insider information. All
employees are governed by the Code of Ethics and Chinese Wall & Insider Trading policies,
where applicable The Code of Ethics prohibits the employee for any misuse of material nonpublic and price sensitive information relating to securities or other financial instruments. In
accordance with the Code, the employee is expected to undertake all necessary precautions
to protect the confidentiality of records when processing material non-public and price
sensitive information.
• The Insider Trading Policy prohibits trading, either personally or on behalf of others, on
material non-public information (including any price sensitive information), or
communication such information to others who trade in violation of law (known as “insider
trading” or “tipping”). The insider trading and tipping restrictions also goes beyond
employees’ immediate families to prohibit employees from illegal profiting (or avoiding
losses), or funneling illegal profits or losses avoided to any person. This also prohibits FM
from insider trading and tipping in client accounts.
• General Prohibition
• Only licensed employees are allowed to provide investment advice to a client or manage
client’s portfolio on a discretionary and non-discretionary basis.
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Market Misconduct
Suspicious Transaction Report
Employee
Any employee who has a suspicion of money laundering or terrorism financing
Report such transaction to the Compliance Officer
Compliance Officer
Compliance Officer (CO) shall conduct further investigation. CO will conduct a
thorough review of accounts and transaction with the Executive Director/MD/CEO
and ascertain if there is a need to submit an STR
If required, the CO shall submit an STR directly to the FIED of Bank Negara
Financial Intelligence
and Enforcement
Department, Bank
Negara Malaysia
BNM will review STR and contact the CO for further information/documents, if
required.
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Outsourcing
•
FM’s may outsource any function subject to OUTSOURCING GUIDELINES
•
FM responsible to assess and monitor and conduct regular scheduled assessment, reported
to the BOD
•
Notification to the SC or the Exchange is not required for outsourced functions that are
determined as non-material.
•
A CMSL holder should refer to paragraph 10.02 of Chapter 10 of the Licensing Handbook;
in determining whether the outsourced function is a material or a non-material function.
This assessment process should be documented.
•
A CMSL is also responsible for reporting to the SC on all assessment and conditions
precedent for such outsourcing activities
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Training And Education
•
•
•
FM must ensure all Executive Directors and employees ( licensed and non) to be
adequately trained.
There is the need to foster a culture of continuous learning amongst individuals who
carry on any capital market activities regulated under the Capital Markets and Services
Act 2007 (CMSA).
Through the CPE programme, it is hoped that investors will gain assurance that these
capital market professionals do not only satisfy the fit and proper criteria but are also
capable to perform their functions effectively, efficiently and fairly. In addition, the
confidence of the international community will be enhanced as higher standards are
being practised by them..
What is CPE ( Continuing Professional Education)?
• The CPE is a mandatory programme for capital market professionals to consistently
update and/or refresh their technical knowledge, skills and ethical standards as has
been collectively prescribed under the Securities Commission Malaysia’s (SC) Licensing
Handbook and the Guidelines on Investor Protection (IP Guidelines) jointly issued by
the SC and Bank Negara Malaysia.
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Training And Education (Cont’d)
Who falls under the CPE requirements?
• The CPE applies to all individual licensed persons and employees of registered persons
who conduct capital market activities as regulated under the CMSA.
• FM must ensure a Training register is kept for all training attended by its licensed
persons.
How much should I do?
• As a CMSRL holder, the minimum requirement would be for you to accumulate 20
points
• CPE points is required in a year on or before the anniversary date of their licence by
carrying out any of the CPE-recognised activities.
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Guidelines
An investment management company (that conducts both asset management business
and the unit trust business) is governed by the following Acts and guidelines issued by
the regulators:
Securities Commission Malaysia

Capital Market Services Act 2007

Guidelines on Prevention of Money Laundering
and Terrorism Financing for Capital Market
Intermediaries

Guidelines on Islamic Fund Management (for
companies that carry Islamic fund management
businesses
Guidelines on Real Estate Investment Trust
Guidelines for the Appointment of a RelatedParty Trustee
Guidelines on Islamic Real Estate Investment
Trusts
Guidelines for the Offering, Marketing and
Distribution of Foreign Funds
Guidelines on Exchange Traded Funds
Guidelines on Due Diligence Conduct for
Corporate Proposals
 Guidelines on Unit Trust Funds
 Guidelines on Wholesale Funds
 Guidelines on Compliance Function for Fund
Management Companies
 Guidelines on Marketing and Distribution of
Unit Trust Funds
 Guidelines on Unit Trust Advertisement and
Promotional Materials
 Prospectus
Guidelines
Investment Scheme
on



Collective

 Licensing Handbook
 Guidelines on Online Transactions
Activities in Relation to Unit Trust
and
 Guidelines on Outsourcing For Capital Market
Intermediaries


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Guidelines (Cont’d)
For an Islamic investment management company (i.e. investment management company that
operates in line with the Shariah principles), it is also governed by the following additional
guidelines:
 Guidelines on Islamic Fund Management
 Registration of Shariah Advisers Guidelines
Federation of Investment Managers Malaysia (FIMM)
• Additional guidelines which would apply to UTMCs
• Self-regulatory organization for the unit trust management industry in Malaysia
 Guidelines for Registration of Institutional Unit Trust Advisers (IUTA) for the Marketing
and Distribution of Unit Trust
 Guidelines for Registration of Corporate Unit Trust Advisers (CUTA) for the Marketing and
Distribution of Unit Trust
 Code of Ethics and Standards of Professional Conduct for The Unit Trust Industry
 Investment Management Standards (IMS)
 By-Laws Relating to the Procedures for Disciplinary Proceedings
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Case 1
Scenario
An investor banks in a third party cheque for RM3 million into his unit trust.
• Last investment made more than 6 months
• Previous transactions never amounted more than RM50k
• Investment made into a cash management fund
Q: What kind of due diligence should have been made and under what guidelines should
the UTMC have made its decision?
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Case 2
Scenario
An institutional investor invests RM1 million into an equity UT. The transaction was carried
out by an agent of the UTMC.
• The agent did not get the necessary sign of PHS and Suitability Assessment
• No performance reports was received
• Scheduled statements was received and signed off by the agent, not company
Q: What should have the investor been asked to do and should have received
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Case 3
Scenario
For the year 2014, FM ABC had conducted considerable large number trades with a brokerage
firm, XYZ Securities Sdn. Bhd. who received brokerage commission of RM2 million as a result. In
view of the good business it has with ABC, XYZ Securities Sdn. Bhd. decided to give a cash rebate
amounting to RM150, 000.00 from the brokerage fee they received. ABC then used that cash to
pay for its subscription fee for Bloomberg and FTSE indices because it views that the services are
of demonstrable benefit to its client and would assist in the decision making process relating to
client’s investments.
Which statements below describe correctly the above scenario?
• Allowed. The cash is received by ABC it is being used to pay for services that are of
demonstrable benefit to client.
• Allowed. This is a soft commission arrangement that is allowed under SC’s Guidelines on
Compliance Function for Fund Management Companies
• Not allowed. Any rebates received must be directed to the account of relevant clients.
• Not allowed. The services described above do not fall under the scope of soft commission
arrangement.
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Case 4
Scenario
A client of ABC has signed two Investment Management Agreement (“IMA”). One IMA is a
discretionary mandate to invest in equities only. The other IMA is a discretionary mandate to
invest in sukuk and equities. In both IMAs there is no clause on the conduct of cross trades.
The fund manager now wants to conduct a cross trade between the two accounts. He has
obtained client’s consent for the trade via a written letter. The trades will executed on fair
value and an arm’s length basis. It will also be in the best interest of both accounts. However,
the proposed trades were rejected by the compliance officer. Why?
• The compliance officer does not feel comfortable with the proposed cross trades.
• The IMA of the client does not allow fund manager to execute cross trades.
• The trades won’t result in a change of beneficial ownership
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Case 5
Scenario
Nora is a portfolio manager who invests significantly in the shares Good Star Bhd, a public listed
finance company. Nora’s husband is works in the finance department of Good Star Bhd. She was
informed by her husband that Good Star’s accounts is showing loss in the 3rd quarter of the year.
The company will announce its quarterly result in a week’s time. With that information Nora
proceeded to sell all of shares of Good Star from her portfolio.
Please select a statement which BEST describes the scenario above:
•
•
•
•
Nora has committed the insider trading offense
Nora can be seen trying to manipulate the market
Both Nora and her husband can be charged for insider trading
Both Nora and her husband are manipulating the share price of Good Star Bhd.
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SECURITIES INDUSTRY DEVELOPMENT CORPORATION
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Acknowledgements
• SIDC COURSE MATERIALS - MODULES 9/10
• RELEVANT GUIDELINES OF SC
• PERSONAL MATERIALS
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Thank You
1. Please slide to the next page
2. Click on the URL
3. Please provide feedback via online evaluation
form
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Evaluation form:
http://www.surveygizmo.com/s3/2182399/Capital
-Market-Director-Programme-Batch-2-Module-2B
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