Securities Commission’s (SC) annual report 2021: SCAMMERS ON THE LOOSE

 

 

Opening Keynote Address by Datuk Syed Zaid Albar, Chairman SC Malaysia at ESG Corporate Summit.

Scams have been increasing in the Malaysian capital market over the past few years, amid the Securities Commission’s (SC) efforts to clamp down on unscrupulous activities.
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Chairman Datuk Syed Zaid Albar said that complaints on unlicensed schemes in 2021 had increased to 52% of total complaints received by the SC, up from 37% in 2020.
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“In line with this, we have also stepped up our anti-scam efforts using a multi-pronged approach,” he said.
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Syed Zaid was speaking during a virtual media briefing yesterday, following the launch of the SC’s annual report for 2021.
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Actions taken by the SC in 2021 against unlicensed activities and unauthorised operators included issuing 24 cease and desist orders to persons carrying on unlicensed investment advice, 13 administrative sanctions via reprimands and directives, and blocking access to 143 websites via the Malaysian Communications and Multimedia Commission (MCMC).
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To date, the SC has undertaken five enforcement actions, 473 regulatory interventions and put up 275 unlicensed companies and individuals on the SC’s Investor Alert List.
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An internal taskforce was also established to investigate investment scams and clone firms which reviewed 159 bank accounts that identified 32 persons of interest.
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In 2021, the SC concluded 22 investigations, and more than 55% of completed investigations last year relate to unlicensed activity and securities fraud.
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Corporate misconduct, which constituted 14% of the total completed investigations, included disclosure breaches relating to securities laws.
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As of Dec 31, 2021, the total number of active investigations were 46.
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“While the SC continued to dedicate substantial resources to conduct investigations relating to securities fraud and market manipulation offences, investigations on corporate misconduct has emerged as the second highest percentage of active investigations carried out in 2021,” the commission said in the annual report.
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Through its civil enforcement actions, the SC had in 2021 restituted RM2.7mil to a total of 721 investors who had suffered losses as a result of such breaches.
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On a separate matter, Syed Zaid said that the SC was monitoring the issuance of non-fungible tokens (NFTs) on a case-by-case basis, amid the global craze to convert real-world items into digital assets.
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This was, however, subject to the nature of the NFTs, the NFT projects as well as the activities carried out at the NFT marketplace, he added.
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An NFT is a unique digital asset that represents ownership of real-world items like photos, videos and audios. It is a non-interchangeable unit of data stored on a blockchain, a form of digital ledger, that can be sold and traded.
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Syed Zaid pointed out that the underlying assets of most NFTs in Malaysia were non-securities products, hence such NFTs did not fall under the SC’s regulations.
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However, SC managing director Foo Lee Mei said that some NFTs may come under the SC’s purview, if the NFTs met the SC’s digital asset prescription order.
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In addition, in the event any of the NFT players engaged in capital market-regulated activities, the issued NFTs would have to adhere to the SC’s rules.
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Based on the SC’s latest annual report, Malaysia’s digital asset market continued to expand in 2021 despite the market uncertainties, with approximately RM21bil in digital assets traded across all registered digital asset exchanges (DAXs).
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The total number of investment accounts surged by nearly 300% to about 760,000 from more than 190,000 in 2020. Since introducing the DAX framework in 2019, the SC had registered four DAXs, namely Luno Malaysia Sdn Bhd, SINEGY Technologies (M) Sdn Bhd, Tokenize Technology (M) Sdn Bhd and MX Global Sdn Bhd.
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Commenting on the Malaysian capital market outlook for 2022, Syed Zaid said volatility will remain, especially in the near term.
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The outlook, he added, will be premised on the baseline expectation of a sustained economic recovery this year.
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However, he warned that further escalation of the Russia-Ukraine conflict could disrupt the much-need economic recovery.
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“As we have witnessed, the impacts are already felt in various market segments worldwide, especially in commodities. “The possibility of a more severe impact still remains, given the potential for further escalation and the lack of a clear resolution.
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“For the moment, the direct impact to Malaysia is still manageable, given our minimal exposure to Ukraine and Russia,” he said.
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Challenges aside, Syed Zaid said the SC’s priorities in 2022 aim to shift the capital market to a relevant, efficient, diversified and inclusive ecosystem.
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This would allow Malaysia’s national growth pillars to achieve its ambitions in areas such as digital, carbon-neutrality and managing the transition of the country into an aged nation.
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“From an organisation perspective, the SC will strengthen its internal digital capabilities and skills set to enable the SC’s workforce to harness state-of-the art digital technology for deeper insights and engender efficiency in our risk management, surveillance and supervision functions.
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“The SC has also embarked on its own journey towards reducing its carbon and environmental footprint, in line with Malaysia’s goal of becoming a carbon-neutral country by 2050,” he said.
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On expected fundraising activities, Syed Zaid painted a positive outlook, underpinned by normalising economic conditions.
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For 2022, he expects about 35 initial public offerings (IPOs) to take place.
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In comparison, there were 29 new listings in 2021, of which six were on the Main Market, 11 were the ACE Market, and the remaining 12 were the LEAP Market. The total amount of funds raised from these new listings was approximately RM2.3bil.
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The SC noted in its annual report that it had also considered an IPO application on the Main Market last year, which would have raised about RM4.7bil. However, the application was subsequently withdrawn.
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“We have also received enquiries and statements of interest in SPACs (special purpose acquisition companies), but it is still too early to tell whether any SPACs will be listed in 2022,” he added.

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Cryptocurrencies not recognised as legal tender in Malaysia

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Cryptocurrencies not recognised as legal tender in Malaysia, says deputy minister

  

Useful assets:Although digital assets are not recognised as legal tender, Yamani added it still has many different usage including as a class asset that can be invested in

 

Cryptocurrencies are still not recognised as legal tender in Malaysia as they do not exhibit characteristics of universal money, says Deputy Finance Minister II Yamani Hafez Musa.

Yamani said cryptocurrencies, also known as digital assets, are also not a payment instrument that is regulated by Bank Negara.
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“Digital assets such as bitcoin and Ethereum are not suitable to be used as a payment instrument as these assets do not exhibit characteristics of money.
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“In general, digital assets are not a store of value and a good medium of exchange.
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“This is due to the state of digital assets which is exposed to volatility as a result of speculative investments,” he said when replying to a question raised by Nurul Izzah Anwar (PH - Permatang Pauh) in Dewan Rakyat on Thursday (March 3).
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Nurul Izzah had asked about the government’s role in monitoring and regulating currency as well as cryptocurrency assets.
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She also asked if the government had any plans to create digital currency taking into account Bank Negara’s involvement in Project Dunbar for international money transfers using blockchain technology.
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In explaining the volatility of cryptocurrency, Yamani said bitcoin hit a peak of US$65,000 (RM272,382.50) in April 2021 but quickly saw a decline of 50% the following week.
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He also said cryptocurrency is exposed to the risk of theft in which statistics from 2011 to 2021 showed that digital assets worth US$12bil (RM50.29bil) have been stolen through cyberattacks and hacking.
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He added that bitcoin is also only able to process 10 transactions per second compared to 65,000 transactions per second on current payment systems such as Visa.
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“Also, what is important is the huge impact on the environment because the electrical power that is used to process one bitcoin transaction can process 1.2 milliob visa transactions.
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In 2020, the bitcoin network used 132 terra-watts per hour which is equivalent to the entire electricity consumption of Argentina,” he said.
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Yamani added that currently, Bank Negara has also not decided to issue a central bank digital currency (CBDC) as the country’s domestic payment systems including the Real-time Retail Payments Platform continues to operate safely and efficiently to support Malaysia’s economic needs and allows real-time digital payments.
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“Additionally, the monetary policy tools and existing finances also remain effective in maintaining monetary stability and the country’s finances,” he said.
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Although digital assets are not recognised as legal tender, Yamani added it still has many different usage including as a class asset that can be invested in.
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As such, he said the Securities Commission (SC) as the market regulator has set digital assets as a security under the law and is responsible to regulate its trading activities.- 

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Concerned citizens lodge MACC report alleging wrongdoings by SC officials, MACC studying NGO report

 Group alleges corrupt practices by top Securities Commission (SC) officials

Potential probe ahead: A view of the SC building in Kuala Lumpur. Rakyat Malaysia Prihatin has cited three cases of alleged wrongdoing by high-ranking SC officials.

PETALING JAYA: A group has come forward to lodge a report with the Malaysian Anti-Corruption Commission (MACC) alleging corrupt practices by high-ranking Securities Commission (SC) officials.

` The non-governmental organisation calling itself Rakyat Malaysia Prihatin claimed to have evidence of alleged wrongdoings that also involved politicians holding top government posts.

` “I want the MACC to investigate this matter immediately. We do not want the integrity and image of the SC to be tarnished due to such cases,” an unnamed representative of the group told Utusan Malaysia after lodging the report with MACC in Putrajaya at about 4.30pm on Sunday (Jan 9).

` The representative cited three cases, the first involving a relative of a senior SC management official who was allegedly given a top post in a company.

` The company in question was being investigated by the SC with the appointment being an alleged inducement to cover up the company’s wrongdoings.

` “There is also a case involving conflict of interest, where a SC board member is alleged to be holding shares worth RM28.2mil in a company which has a working relationship with the commission.

` “The third case involves high-ranking SC officials taking bribes to close cases involving insider trading by public-listed companies,” the representative claimed.

` The group said it was acting as "concerned rakyat" who wanted to ensure that government agencies are clean and not corruptly used for personal gain.

` It then added that it would provide the MACC with proof of the wrongdoings once investigations begin.

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MACC studying NGO report

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PUTRAJAYA: The Malaysian Anti-Corruption Commission (MACC) is going through a report lodged by a non-governmental organisation against the Securities Commission (SC).A senior official confirmed that the report was lodged on Sunday by a group calling itself Rakyat Malaysia Prihatin.

` The NGO has alleged that there are corrupt practices by high-ranking SC officials.

` It also claimed to have evidence of alleged wrongdoings that involved politicians holding top government posts.

` “Yes, we have received the report. MACC officers are going through it before we decide to open investigation papers or not,” said the official when contacted.

` This, the official added, was the procedure each time a report was lodged.

` To a question, the official said it was not unusual to have people wanting to lodge reports to MACC on weekends or public holidays.

` “It has been done before. We have officers on standby 24 hours a day, seven days a week,” said the official.Several attempts were made to contact the NGO members for comment yesterday.The Star managed to get hold of the contact number of its representative, but the phone was answered by a person who claimed that he was not the person this reporter was looking for.

` On Sunday night, Utusan Malaysia reported about the NGO going to the MACC.“I want the MACC to investigate this matter immediately. We do not want the integrity and image of the SC to be tarnished due to such cases,” an unnamed representative of the group was quoted as saying after lodging the report with MACC in Putrajaya at about 4.30pm on Sunday.

` He cited three cases, the first involving a relative of a senior SC management official who was allegedly given a top post in a company.

` The company in question was being investigated by the SC with the appointment being an alleged inducement to cover up the company’s wrongdoings.

` “There is also a case involving conflict of interest, where a SC board member is alleged to be holding shares worth RM28.2mil in a company which has a working relationship with the commission.

` “The third case involves high- ranking SC

`officials taking bribes to close cases involving insider trading by public-listed companies,” the representative claimed. The group said it was acting as “concerned rakyat” who wanted to ensure that government agencies were clean and not used for personal gain.It also said it would provide the MACC with proof of the wrongdoings once investigations began.

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 India and China come down hard due to concerns of financial market stability, illegal fundraising

N THE latest twist involving the world of cryptocurrencies, India’s government plans to impose a massive ban on the asset class.

Reports have indicated that the Indian government plans to pass a bill that would ban just about every activity involving cryptocurrencies, including the possession, issuance, mining, trading and the transferring of crypto-assets.

Once passed, this would make it one of the world’s strictest policies on cryptocurrencies. Government officials have said that the move is because they believe cryptocurrencies threaten the stability of financial markets, tend to fund unlawful activities and even resemble ponzi schemes.

The move by the Indian government falls in line with the school of thought that cryptocurrencies could increasingly suffer bans by governments around the world.

In India’s case, the move comes after an earlier ban two years ago. But last year, the courts in India overturned the decision, citing the ban as “disproportionate” after cryptocurrency exchanges filed a lawsuit against the central bank’s ban.

The strong stance against cryptocurrencies has also been shown by China’s government. More than three years ago, China was the first country to ban initial coin offerings (ICOs), calling it “illegal fundraising”.

Since then, the Chinese government has accelerated efforts to clamp down all businesses involved in cryptocurrency operations, including bitcoin miners.

China’s government says its stance is based on investor protection, money laundering concerns and the unnecessary consumption of energy due to crypto mining activities.

Last month alone, there were plans to ban new cryptocurrency mining projects and shut down existing ones in China’s Inner Mongolia region.

As one financial analyst puts it, “the problem with cryptocurrencies is that while it thrives to work in an unregulated world, it is bound to come under the scrutiny and regulation of governments, which are mostly afraid of its misuse and potential negative impact to financial markets. Perhaps somewhere in the future, a balance will be struck but that is anyone’s guess”.

While governments have a tendency to ban cryptocurrencies, many are embracing blockchain technology with the intention of issuing state-backed digital currencies.

This is essentially an electronic version of notes or coins which would replace physical cash entirely and dubbed central bank digital currencies or CBDC.

China is one of the leading countries for this and has already passed a law to legalise its own official digital currency. Similarly, India is an example of another country that is considering having its own digital currency. Interestingly, India’s move to pass the bill to ban cryptocurrencies comes soon after the mother of all cryptos, namely, bitcoin has hit its all-time high past US$60,000 (RM246,449) for the first time earlier this week.

The world’s biggest currency rally was driven by speculative demand, increased adoption by firms and institutional investors that see bitcoin as a store of value. Last month, Tesla bought over a billion dollars worth of bitcoins.

The electric car maker said it plans to accept the digital coin as payment for its products. Mastercard has also said it would also soon accept bitcoin as a form of payment.

Asset manager BlackRock and payment companies Paypal and Square have also recently backed cryptocurrencies.

Back home, the question remains whether the government, central bank or the Securities Commission (SC) would take a stronger stance against cryptocurrencies.

Malaysia’s regulators have held the view that digital assets are not legal tender and have warned investors to be cautious when dealing with cryptocurrencies.

SC chairman Datuk Syed Zaid Albar tells StarBizWeek that “investors must understand that unregulated, offshore investments are not protected under Malaysian securities law”.

“The SC has put in place a regulatory framework for such new emerging investment channels to provide certainty to issuers and investors who are keen to explore these new instruments.

“For example, our regulatory framework has tried to address issues such as putting investors’ money in trust accounts, accurate disclosures, cooling-off periods and conflict of interest situations are also regulated, ” Syed Zaid explains.

The country’s central bank, Bank Negara, also echoes a similar view, explaining that digital assets lack the characteristics of money and suffer from several limitations such as price volatility and risks of cyber threats.

“Digital asset activities are also subject to anti-money laundering and counter-terrorism financing regulations administered by the respective authorities, ” the central bank reported in its annual report in 2019.

Malaysia is also one of the countries studying the feasibility of issuing its own digital currency. “The bank is no exception, and we continue to engage closely in discussions surrounding CBDC with other central banks, ” it said.

More collaborations among central banks around the world are taking place to study the impact of a digital currency for financial stability and the monetary policy of a country.

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Fintech - disruptive technology

https://youtu.be/2Z5RXuRx1B4

http://www.thestar.com.my/business/business-news/2016/05/21/fintech-disruptive-technology/

Businesses are embracing it by coming up with their innovations and startups

A BUZZWORD growing in popularity in the financial world today is “fintech”, short for financial technology, which in a nutshell refers to the use of technology to deliver faster and cheaper financial services.

Going by some predications, fintech could take a big chunk of business away from traditional banks as it is being run by smaller more nimble start-ups. But the debate is still out there as to how much that chunk will be. In Malaysia in particular, fintech’s presence is still nascent and small. Fintech transactions totalled a mere US$6.37mil this year compared with a global figure of US$769.3bil, according to Statista, an online statistics provider.

It however predicts that fintech transaction values to grow to US$14.4bil by 2020. A significant number of fintech companies, especially those in the digital payments space, actually work alongside local banks.

Still, fintech is not to be taken lightly. Top bankers themselves are speaking of its imminent threat to their business. Former Barclays CEO Anthony Jenkins referred to it as banking’s “Uber moment” to describe technological advances that could see bank branches close down and people laid off.

Last April, Jamie Dimon the CEO of the US’ largest bank JP Morgan in his letter to shareholders warned that “Silicon Valley is coming.” “There are hundreds of start-ups with a lot of brains and money working on various alternatives to traditional banking,” Dimon wrote.

On the home front, just last month prominent banker Datuk Seri Nazir Razak echoed such views. Speaking at the Star Media Group’s PowerTalk: Business Series held at Menara Star, Nazir opined that fintech companies are disrupting banking.

“Bankers must respond to this Uber moment. People actually dislike banks today, since the global financial crisis. Recent data suggests that in the US, the cost of banking intermediation has not changed for 100 years in real terms. This simply means banks have not gotten more efficient over the years, so its right that banks get attacked by ‘Silicon Valley’, which has identified banking as an industry that is very ‘ripe’ or juicy to disrupt.”

Even the central bank is echoing these views.

In his maiden keynote address at an Islamic finance conference in Kuala Lumpur last week, Malaysia’s newly-appointed Bank Negara governor Datuk Muhammad Ibrahim gave a grim reminder to banks of the threats posed by fintech. In particular, Muhammad quoted from a report by McKinsey that 10% to 40% of banking revenue is possibly at risk by 2025 due to innovations outside banking institutions that are able to offer a significant pricing advantage and that technologically-driven applications had spread to nearly every segment of the financial sector, with the number of fintech start-ups having doubled in the last year. “Fintech is challenging the status quo of the financial industry,” he said.

To be fair, Malaysian banks are quick to point out that while fintech does represent a disruption to business, they are embracing the movement, by coming up with their own fintech innovations or by working with fintech startups.

So what is fintech?

In a nutshell, fintech is an economy of companies using technology to improve efficiencies and effectiveness in the financial services industry. To illustrate the offerings of fintech companies, consider the business model of homegrown start-up MoneyMatch, which is modelled after UK-based TransferWise which began in 2011 and today moves US$10bil a year through its platform.

MoneyMatch has created a platform to match individual buyers and sellers of currencies, with the attraction of both sides enjoying better exchange rates than what banks and even money changers offer. The rate used by the MoneyMatch site is the middle rate of the currency exchange spread. So an individual for example, willing to buy US$100 for his travels will be matched with someone wanting to change his US$100 into ringgit. The parties will be matched on this application and then proceed to make their exchange in an agreed location. MoneyMatch is also entering the area of cross border fund transfers.

“For example, someone in Singapore wishing to transfer money to Malaysia can be matched with someone here wishing to send an equal amount of money across the Causeway. Hence the parties can make the respective transfers to local accounts of their choice after an exchange of information. This means the transfer is done minus any cross-border transfer fees,” explains MoneyMatch co-founder Naysan Munusamy, who had spent many years as a forex trader with a number of banks before venturing out to start MoneyMatch.

Peer lending

One key growth area in fintech is peer to peer or P2P lending, online platforms that match borrowers with lenders, bypassing the traditional financial institutions. The business had even attracted big names such as Goldman Sachs. The most notable name in this space is Lending Club, which had launched its service as far back as 2007 and became the US’ largest technology IPO in 2014, raising around US$1bil.

Lending Club claims that its platform – which enables borrowers to get unsecured loans of US$1,000 to US$35,000 – has now helped originate close to US$16bil in loans.

Locally, last month the Securities Commission (SC) launched a regulatory framework for P2P lending, paving the way for small and medium-sized companies to access this new avenue of debt funding. Under SC’s rules though, individuals are not allowed to raise money on the local P2P platforms. Rather it is meant to only fund projects and businesses and a number of safeguards are in place. For example, those behind the operator of the P2P platform need to pass the “fit and proper” test; the rate of financing cannot be more than 18% (as that would be deemed predatory lending) and that the P2P operator has to disclose information related to the issuer and the risk assessment and credit scoring parameters adopted by the operator. There is no authorized P2P platform in Malaysia yet as parties wishing to run such platforms have to submit their application to the SC soon.

In China, P2P lending has virtually exploded. As a recent report by Citibank highlights, “China is past the tipping point”, with fintech companies having similar number of clients as the major banks. The report notes that China is the largest P2P lender in the world, with transactions topping US$66bil, compared with the US with only US$16.6bil.

 Regulating fintech

But there are problems. Some unregulated P2P platforms in China had run scams. Others helped fuel an equity roller-coaster by offering funding for stock investments. This led to the Chinese benchmark index rallying more than 150% in the 12 months to last June before abruptly crashing. The Chinese authorities are now cleaning up the P2P sector.

So what are the risks of fintech regulation in Malaysia? And do companies like MoneyMatch need be regulated and licensed?

In an emailed reply to StarBizWeek, Bank Negara says: “Fintech start-ups that engage in activities under the purview of the central bank must comply with existing laws”. Bank Negara explains that regulated businesses include banking, insurance or takaful, money changing, remittance, operating a payment system or issuing payment instruments.

“A fintech company that engages in any activity that falls within the definition of a regulated business must be properly authorised to do so under the relevant laws.

“As an example, collecting deposits via a fintech platform would require approval from Bank Negara.

“A fintech company that is authorised to conduct a regulated business under the laws that Bank Negara administers will be subject to the oversight of Bank Negara pursuant to those laws.”

What this indicates is that Bank Negara is going to regulate fintechs the same way it does banks. But exactly how, it still isn’t clear.

But the good news is this: Bank Negara says it is engaging with firms in this space (and presumably that includes the likes of MoneyMatch), “to understand and where appropriate facilitate their business and provide guidance on aspects on regulation that would be applicable to them.”

Bank Negara adds that it is in the process of formulating a framework that “encourages innovation without undermining financial stability, the integrity of the financial system or the adequate protection for financial consumers.”

The SC has also been pushing for fintech innovation to develop in Malaysia. Last year, Malaysia became the first country in the region to introduce the regulatory framework for equity crowd funding. (While P2P is about companies raising debt, crowd funding is for entrepreneurs to sell equity to investors.)

The SC has also launched aFINity@SC, a fintech community aimed at industry engagement and more recently launched the P2P financing framework, which is aimed at addressing the funding needs of small businesses.

Chin Wei Min, the SC’s new head of innovation and digital strategy, says: “We think fintech can provide solutions to some of the unserved and underserved needs in the capital market.”

Chin adds: “We are also mindful of the risk, fraud and all the pitfalls. We continue to enhance our engagement model. We want to remain very close to the industry.”

Fintech’s hiccups

Some recent developments in the fintech space, however, point to weaknesses in fintech companies. LendingClub, the poster boy company for P2P lending has seen its shares tumble, wiping out about a third of its market value.

This came as it faces scrutiny after its founder and CEO resigned following an investigation into improper loan sales.

The US Treasury has released a report criticising the P2P lending business, recommending it to be more tightly regulated. Some commentators are liking P2P lending to the early days of the subprime mortgage bubble of 2006-07.

It is more likely though that the experiences of fintech in mature markets like China and the US will serve as good guides as to how this business will grow in this part of the world, with the requisite regulations put in place.

And the jury is still out as to whether traditional banks here will lose significant parts of their businesses to fintech start-ups.

Or as one industry observer puts it, fintech is more likely to usurp the business of the shadow banking market here, as some unserved borrowers now have the option to move away from loan sharks or “Ah Longs” and into the crowd funding or P2P platforms. But after that, banks could be next.

By Risen Jayaseelan, Wong Wei-Shen, and Zunaira Saieed The Star


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