Suruhanjaya Sekuriti
Securities Commission
Office of the Director
Strategy Research & Corporate Affairs Division
CAD/PA/GC/2000-097
4 August 2000
Nick Lord
The Editor
FinanceAsia.com
10/F Universal Trade Centre
3 Arbuthnot Road, Central
Hong Kong
Dear Editor,
Article entitled “Malaysia’s Long Road to Becoming a Financial Capital”
We refer to the article “Malaysia’s Long Road to Becoming a Financial Capital” by Rico Ngai, which appeared in FinanceAsia.com on 7 July 2000.
We believe that the mass media has every right to present its views, provided those views are fair and supported by accurate information. However, this was not at all apparent in the said article.
It is disappointing that the Editor of FinanceAsia.com had allowed the article, which is made up of a series of sweeping statements and contains factual errors, reflecting the writer’s lack of understanding of the Malaysian market, to be published.
The Securities Commission (SC) has always regarded the development of the fund management industry in Malaysia as a priority area and had identified the industry as an important agenda in the SC’s efforts to develop the Malaysian capital markets. In addition, the fund management industry is a major area of focus of the Capital Market Master Plan, which the SC is currently formulating.
The revision to the Guidelines on the Establishment of Foreign Fund Management Companies (FFMC Guidelines), announced on 3 July 2000, is a step taken to reflect policy changes in the country, and were made after taking into consideration the comments and suggestions by market participants. The revised guidelines were also reformatted and restructured for easy reading and reference.
The writer reported as statements of facts two new changes in the FFMC Guidelines. He claimed them to be:
1) Paragraph 3: "Fund managers would now be allowed to offer investment advisory services without having to apply for a separate licence under the new guidelines."
This is incorrect and at no point was the writer informed of this. A fund manager’s licence already allows local and foreign fund management companies (FFMC) to undertake on behalf of clients, whether on a discretionary authority or otherwise, the management of portfolio for the purposes of investment. The revisions to the FFMC Guidelines were made to reflect that these activities may be carried out by FFMCs, as provided for by the securities laws.
The SC told FinanceAsia.com that with the recent revisions to the FFMC Guidelines FFMCs are allowed to include funds managed on a non-discretionary authority (i.e. to provide investment advisory services on behalf of clients) in addition to funds managed on a discretionary authority, in order to fulfill the USD100million requirement. This was however not allowed under the old guidelines.
2) Paragraph 4: "FFMCs wanting to operate in Malaysia as a joint venture with a local partner only need to prove that they have raised and managed US$50 million from overseas, compared to a previous limit of US$100 million. However, the requirement is raised to US$100 million to renew the fund manager’s licence."
This again is inaccurate. The facts, as informed to FinanceAsia.com, are that under the new requirements, an FFMC needs to only source a minimum US$50 million instead of US$100 million (under the old guidelines) if the fund manager wants to manage domestic unit trust funds. [NB: The requirement to raise the USD100million to renew the fund manager’s licence is necessary for the purpose of managing local funds (including domestic unit trust funds). This requirement has been in existence since the FFMC Guidelines were first released in August 1995.]
In addition, we would also like to note that a foreign fund manager is also subject to the following conditions, if it wants to manage funds from within Malaysia:
+ At least 30% of its share holding must be held by local shareholders;
+ The FFMC must manage or undertake to manage funds, sourced from and on behalf of clients outside of Malaysia in the amount of at least US$100 million before or upon expiry or renewal of the first licence; and
+ The amount of each fund sourced from within Malaysia shall be at least RM10 million.
The article shows the writer’s lack of understanding of the structure of the Malaysian market. He does not seem to know that there are separate guidelines for fund management companies and unit trust management companies. The FFMC Guidelines cater to those managing a portfolio of funds on behalf of clients for the purpose of investments. They were first released in August 1995 in line with the government’s measures to liberalise the fund management industry and allow foreign fund managers to set up operations in Malaysia.
On the other hand, anyone, including FFMCs, who want to operate unit trust schemes would have to set up unit trust management companies and comply with the SC’s Guidelines on Unit Trust Funds as well as other related regulatory requirements.
In addition to these factual and contextual inaccuracies, the writer also made false assertions that he did not receive any response from the SC to his questions on FFMC’s key concerns like capital controls, the opening up of local mutual fund markets to foreign competition, lifting of overseas investment and types of products which may be allowed. The fact is the writer did not submit such questions, which in any case do not relate to the FFMC Guidelines.
Then to further sensationalise the article, the writer makes sweeping statements on various subjects, including bank mergers, without consideration of the purview under which these matters fall under nor whether these matters are within the scope of the FFMC Guidelines.
The writer also made sweeping allegations on the lack of transparency in the SC, without providing any justification nor supporting evidence. Readers should judge for themselves whether such statements as “…but until the Commission becomes more transparent about its own decision making process, it will command little respect among the liberal investment world. After all, who can forget the country’s imposition of capital controls?” are warranted in an article purportedly written to clarify the revised fund management guidelines.
As a proponent of transparency, the SC had responded to the questions posed by the writer. However, the SC is dismayed at the lack of due care and professionalism shown by both the writer and FinanceAsia.com in using the information that was provided and the manner and context within which the information has been presented.
Yours faithfully,
SECURITIES COMMISSION, MALAYSIA
RANJIT AJIT SINGH
