By:
Bryan Lui (Co-Managing Partner) [bryanlui@luibhullar.com]
Harneshpal Karamjit Singh (Co-Managing Partner) [harnesh@luibhullar.com]
Introduction
Leveraging the dynamic landscape of Malaysia’s financial sector, venturing into capital markets requires adherence to strict regulatory standards overseen by the Securities Commission Malaysia ("SC").
Central to this regulatory framework is the Capital Market Services License ("CMSL"), a prerequisite for entities engaging in various capital market activities.
This article delves into the essential requirements for obtaining this pivotal license, with a focus on securities law, regulatory compliance, and corporate governance in Malaysia.
Regulated Activities under the CMSA 2007
Within Malaysia, it is a requirement under Section 58 of the Capital Markets and Services Act 2007 ("CMSA 2007") for businesses engaging in regulated activities to obtain a valid CMSL from the SC. Such a license is essential for compliance with securities laws, ensuring investor protection, maintaining market integrity, fostering trust, and accessing business opportunities in Malaysia’s regulated financial markets.
The CMSA 2007 stipulates 8 types of regulated activities requiring a CMSL under Schedule 2:
Dealing in securities
Dealing in derivatives
Fund management
Advising on corporate finance
Investment advice
Financial planning
Dealing in private retirement schemes
Clearing for securities or derivatives
Each regulated activity entails different licensing requirements as set out by the SC. This article uses “dealing in securities” and “dealing in derivatives” as examples to illustrate the application requirements for a CMSL.
Dealing in Securities
Part 2 of Schedule 2 of the CMSA 2007 defines "dealing in securities" as engaging in activities related to securities, whether as a principal (directly) or agent (on behalf of someone else). These activities include acquiring, disposing of, subscribing for, or underwriting securities, as well as agreements to secure profit from securities’ yield or fluctuations in value.
The definition excludes derivatives, but emphasizes compliance with Malaysia’s securities law and corporate governance standards.
Dealing in Derivatives
“Dealing in derivatives” is defined under the CMSA 2007 as engaging in activities related to derivatives, either directly or as an agent. This includes making agreements with others, soliciting or accepting orders for derivatives, entering into or taking assignments of derivatives, and managing derivatives trading operations.
Effective compliance frameworks and risk management practices are critical for entities dealing in derivatives.
CMSL Requirements and Considerations
A CMSL applicant must meet the fit and proper criteria referred to in Sections 64 and 65 of the CMSA 2007. Key requirements include:
(a) Fit and Proper Criteria
The SC evaluates the integrity, competence, and financial soundness of the applicant as an organization and its key personnel. This involves assessing the applicant’s track record, qualifications, corporate governance, shareholding, management, and any regulatory infractions.
(b) Compliance Framework
Applicants must establish robust compliance policies to adhere to securities laws, market conduct standards, anti-money laundering regulations, and Bursa Malaysia’s legal compliance requirements. A sound compliance framework fosters trust and confidence in Malaysia’s capital markets.
(c) Minimum Capital Requirements
Applicants must meet the SC’s minimum capital requirements to ensure financial capacity and resilience. Capital adequacy enables entities to operate prudently and mitigate market risks effectively.
(d) Business Plan
A detailed business plan is required, outlining the applicant’s market strategy, operational framework, financial projections, and risk management practices. The business plan is a cornerstone for evaluating the applicant’s potential contribution to Malaysia’s capital market landscape.
(e) Qualified Personnel
The SC requires applicants to employ competent and experienced personnel. This includes individuals with relevant qualifications, such as completion of the SC Licensing Examination, and expertise in securities dealing, derivatives trading, and regulatory compliance.
(f) Systems and Infrastructure
Entities must invest in robust systems and infrastructure, including technology platforms for trading, risk management tools, and adequate physical facilities. Digital securities law and fintech advancements are critical for ensuring operational efficiency and market competitiveness.
(g) Risk Management Framework
Applicants must establish a comprehensive risk management framework tailored to their operations. This framework should address risks related to derivatives, equity capital markets, structured finance, and emerging trends such as ESG compliance and cryptocurrency regulations.
Application Process
The CMSL application process involves several stages:
(a) Preparation
Applicants should familiarize themselves with regulatory requirements and consult professional advisors to ensure compliance with Malaysian capital market regulations.
(b) Submission of Application
A completed application form, along with supporting documents, must be submitted to the SC. This step includes demonstrating adherence to venture capital law, private equity law, and other relevant standards.
(c) Assessment and Review
The SC conducts due diligence and evaluates the application against prescribed criteria. This includes scrutinizing the applicant’s compliance framework, corporate governance, and market conduct.
(d) Approval and Issuance
Upon satisfying all requirements, the SC grants the CMSL, subject to conditions or restrictions as deemed necessary. The license enables entities to engage in Malaysia’s vibrant capital markets while adhering to financial services law.
Conclusion
Navigating the requirements for obtaining a CMSL in Malaysia demands meticulous attention to detail and a deep understanding of regulatory standards.
By fulfilling the stipulated criteria and demonstrating commitment to compliance, corporate governance, and risk management, entities can secure the CMSL and access Malaysia’s thriving capital markets.
Leveraging professional expertise and collaborating with regulatory authorities can streamline the application process, paving the way for successful participation in the nation’s capital markets.
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