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Elevated Standard Of Conduct For Capital Market Intermediaries






On 29 March 2024, the Securities Commission Malaysia (SC) issued the revised Guidelines on Conduct for Capital Market Intermediaries (Guidelines) with the target of increasing the standards of professionalism and integrity of capital market intermediaries (CMIs) in the industry. CMIs are defined under the revised Guidelines to mean:

 

(a) a holder of a Capital Markets Services License granted by the SC pursuant to Section 61 of the Capital Markets and Services Act (CMSA);

 

(b) a registered person under Section 76 of the CMSA to carry out regulated activities which includes dealing in securities or derivatives, fund management, advising on corporate finance, investment advice, financial planning, dealing in private retirement schemes and clearing for securities or derivaties (Regulated Activities); or

 

(c) a person registered under Section 76A of the CMSA to provide capital market services.

 

The common CMIs include investment banks, stockbroking firms, as well as individuals registered to carry out the Regulated Activities.

 

In order to provide ample time for CMIs to acquaint themselves with the amendments and make necessary adjustments to comply with the new requirements, the revised Guidelines are scheduled to come into effect only on 1 October 2024.

 

Key Amendments to Guidelines

 

The key amendments to the Guidelines include, amongst others, the following:

 

1.               Clarification of role of board and senior management of CMIs in ensuring that CMIs comply with the Guidelines:

 

(a)            The revised Guidelines introduce a new Chapter 5 which requires the board of directors of CMIs to ensure that the CMI has in place controls, policies and procedures (CPP) which are:

 

(i)              appropriate to and commensurate with the nature, scale and complexity of the business of the capital market intermediary and are properly documented;

(ii)             continuously monitored for their compliance; and

(iii)           reviewed on a regular basis to ensure they remain relevant and effective.


(b)            The new Chapter 5 also requires a CMI’s senior management to amongst others implement and monitor the effectiveness of the CPP and ensure that breach of any of the CPP are identified and appropriately acted on.

 

2.               Setting out SC’s expectations on CMI’s treatment of clients:

 

(a)           The revised Guidelines have been amended to:

 

(i)                  require CMI and their representatives to provide information to clients that is accurate, balanced, complete, sufficient for clients to make informed investment decisions and which does not omit any material information;

 

(ii)                 require CMI and their representatives to offer products that are suitable to clients’ particular circumstances when giving personal advice; and

 

(iii)               clarify what CMI and their representatives must take into consideration in discharging the obligation relating to the handling of clients’ complaints and disputes.

 

(b) Further, a new paragraph has been inserted to require CMI and their representatives to explain to clients the implications of terms in standard form contracts which affect the clients’ rights and obligations.

 

3. Setting out requirements on the treatment of vulnerable clients

 

A new Chapter 7 has been inserted to set out SC’s expectations on the treatment of vulnerable clients (i.e. a natural person who, due to his personal circumstances, may require a CMI to exercise more care when dealing with the person). SC requires a CMI to have in place CPP that, among others, enable the CMI and its representatives to identify and respond appropriately to a vulnerable client. Based on the Frequently Asked Questions on the revised Guidelines[1], this new Chapter 7 is introduced to ensure that that a vulnerable client is not disadvantaged by his circumstances and that all clients, including vulnerable clients, are treated fairly.

 

4.  Setting out principles and requirements applicable to CMI providing a capital market related service on or through an online platform

 

A new Chapter 13 has been inserted which requires a CMI to ensure that the online platform is appropriately authorised, and properly designed and operated in compliance with all relevant laws, regulations and guidelines, including the Personal Data Protection Act 2010 and the Guidelines on Technology Risk Management. Further, a CMI is required to ensure amongst others that:

 

(a) Clients who purchase a capital market product or service on or through an online platform are accorded with the same rights that would otherwise be available in relation to the capital market product or service distributed or provided through other channels or means;

 

(b) Adequate client on-boarding arrangements and processes are put in place for the purposes of complying with the Guidelines on Prevention of Money Laundering and Terrorism Financing for Reporting Institutions in the Capital Market; and

 

(c) It gives due regard to, among others, the complexity of a capital market product or service in the selection of capital market products or services to be hosted on the online platform. Products and services hosted on an online platform must only be made available to the intended target market for those products or services. Given their complexity, certain products should not even be hosted on an online platform.



10 May 2024

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