Policy Dialogue

on
Corporate Governance

Regulatory Enforcement :
The Malaysian Experience
Presented By:
Siow Kim Lun, Director
Market Supervision
Division
Securities Commission
MALAYSIA
Caveat : The views expressed by the presenter reflect his personal views and
need not necessarily represent the official views of the Securities
Commission
Agenda

2. Division of
2.
1.Accountabilit
responsibilities
y of Regulators
between the
Securities
Commission
(SC), Stock
Exchange and
SROs

3. Developing
effective
sanctions and
incentives
Accountability of Regulators

Introduction :

The Asian economic crisis of 1997 1998

and financial scandals like Enron and
WorldCom have reinforced the importance of
good corporate governance

Today, corporate governance is a key factor

in investment decisions
Accountability of Regulators

To Whom is SC Accountable?

Parliament SC, as a statutory body,

discharges duties and carries out mandate
endorsed by Parliament

Other Stakeholders investors protection

is SCs paramount concern; SC ensures proper
market conduct and that market operates
efficiently; SC carries out effective
enforcement of securities laws and rules
Accountability of Regulators

What are the Regulators seeking to promote ?

Disclosure &
Disclosure & Financial
Financial transparency
transparency timely,
timely, accurate
accurate and
and
reliable disclosure
reliable disclosure on
on companies
companies financial
financial positions
positions

Proper
Proper Market
Market Conduct
Conduct and
and Business
Business integrity
integrity

Accountability
Accountability and
and responsibility
responsibility to
to protect
protect investo
invest
interest through
interest through effective
effective enforcement
enforcement of of securitie
securitie
laws and
laws and rules
rules

Investor
Investor confidence
confidence
Accountability of Regulators
Implementation of Key Corporate Governance
Initiatives in Malaysia
1. Listing Requirements sets out corporate governance rules
that must be complied with by public listed companies
(PLCs) and their directors
2. Malaysian Code on Corporate Governance - introduced in
year 2000, which sets the tone for the directors of PLCs to
inculcate good corporate governance practices for their
organisations
3. DBR SC has moved from a merit-based regulation to a
disclosure based system of regulation. DBR accords great
flexibility for issuers to raise capital but it imposes high
standards of due diligence and disclosure
4. Duties of auditors of listed corporation (section 99E SIA) to
report breaches of laws and Rules
5. Financial reporting framework - accounting standards
issued by Malaysian Accounting Standard Boards come with
legal backing with enforcement powers given to authorities
such as Securities Commission, Central Bank of Malaysia
Accountability of Regulators

Shareholder activism the Minority Shareholder Watchdog

6. Group was established in August 2000 with the aim to:

create awareness among minority shareholders of

their rights

act on behalf of minority shareholders to deter

abuses of majority shareholders who control the
decision making process of a PLC
Division of Responsibilities between SC, Stock
Exchange & SROs
Delineation of Functions to Achieve Greater
Efficiency in the Enforcement of Securities
Laws and Regulations in Malaysia
Role of SC (Regulator) - enforcement agency with
powers to investigate and take administrative, civil or
criminal actions. It also has an equally important role
to develop the Malaysian capital market.
Role of the Stock Exchange enforce compliance of
the Listing Requirements and Business Rules. Has
power to suspend, de-list, issue caution / reprimand &
impose fines.
Role of SROs in Malaysia more empowerment to the
industry associations such as the Association of Stock
broking Companies Malaysia (ASCM) and Federation
of Malaysian Unit Trust Managers (FMUTM), whose
role is to regulate conduct of their members (e.g.
Division of Responsibilities between SC, Stock
Exchange & SROs

Types of Enforcement Actions Taken by

the SC : 1993-2003
Warning letters
(15%) Criminal charge
(22 cases involving 29 individuals (49%)
& 9 companies) (71 cases involving 97 individuals & 7
companies)

Compound
(36%)
(53 cases involving 40 individuals & 30 companies)
 Division of Responsibilities between SC, Stock
Exchange & SROs
E.g.:
Types of Offences Prosecuted
Providing false or
by the SC : 1993 - 2003 misleading information
on proposals, dealings
Corporate Governance in securities or affairs
Fraud (7%) (36%) of company
(5 cases involving 13 (26 cases involving 38 individuals Fraud involving
individuals & 1 company) & 2 companies) directors or
management.
Mis-utilisation of funds
raised
Breach of condition of
SCs approval
Trading offences
Short selling involving directors or
& licensing related management.
Offences (44%)
(31 cases involving Futures industry
30 individuals & 2 companies) Offences (13%)
(9 cases involving 16 individuals & 2 companies)
Developing Effective Incentives
and Sanctions
Incentives
Protection for whistle blowing Section 99F of the SIA
offers protection to those who report breaches of securities laws,
rules or any matter affecting PLCs financial position
Green lane scheme faster approval for corporate proposals
and less stringent conditions of approvals for companies with
good record on corporate governance
Recognition through annual rewards given to PLCs with
exemplary governance practices and those which practice good
disclosure standards

Sanctions
Enforcement actions against those who breach securities
laws and listing requirements
Merit /Demerit scheme SC will conduct thorough
investigations on PLCs with poor governance practices and thus
resulting in slower approvals for corporate proposals
 Summary of key corporate governance
reforms in Malaysia
1998 1999 2000 2001 2002 2003 2004
New Malaysian Code on
Takeovers and Mergers
Amendments to
(January)
securities laws to
Major revamp of inter alia introduce
Listing requirements Amendments to
Listing KLSE Listing SC introduces merit- provisions governing
mandate quarterly securities and
Rules & Requirements :
reporting (August) company law to
Requirements new demerit incentives in whistle blowing and
strengthen rules on chapter 15 on Guidelines on enhance
Regulations related party
Guidelines on
harmonise the
regulatory regime for
corporate Issue/Offer of enforcement/ redress
transactions (July) governance Securities (April) mechanisms for
Issue/Offer of Securities prospectuses (July)
(January) breaches of
facilitate equity
securities laws
participation by
(January)
independent directors
(December)

Malaysian Code on
Corporate Taskforce on Internal Best practices for
Institute of Internal
Governance (March) Controls issues a
Best guidance for
Auditors issues good corporate
disclosures
guidelines on the
Practices MAICSA best
practice guidance of
directors on
statement of internal
internal audit (expected this year)
function (July)
company secretaries controls (February)
(November)

SC licenses
Minority
Shareholder
Institutional Malaysian Institute of
Corporate Minority Shareholder
Directors Mandatory
Accreditation
Watchdog Group
Directors Continuing
Education
as an investment
reforms Governance formed Watchdog Group
formed (August)
Programme
commences (April)
advisor and
Programme
commences
(March) receives grant of
(July)
RM250,000
(March-April)
Thank You