2006 OECD Asian Roundtable on Corporate Governance
Seminar on Corporate Governance Development in Thailand
Bangkok, 13 September 2006
Regulatory Discipline Fostering Enforcement Mechanism
The Regulatory Challenge in Malaysia
Nik Ramlah Mahmood
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In developing markets, regulatory discipline is key
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Legal and institutional reforms must be backed by regulatory
enforcement
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International community increasingly look to enforcement as the
main measure of corporate governance
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Developing countries need time to promote corporate governance
awareness and strengthen private enforcement
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Shareholder activism at nascent stage
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Strong public enforcement is crucial
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Effectiveness of regulatory discipline depends on a variety of factors
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Availability of a wide array of enforcement tools
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Regulators that are well-resourced
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Strong coordination where multiple agencies are involved
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Appropriate legal framework and judicial process
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Malaysia’s securities laws seek to achieve an optimal mix of
criminal, civil and administrative powers
Enforcement tools available to the Securities Commission
Criminal action
Civil action
Administrative action
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Fines
Imprisonment
Compounds
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Civil Relief
Civil Recovery and Penalty
Power to disqualify CEO and directors
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Warnings and cautions
Revocation of approvals
Stop orders
Revocation/Non-renewal of licence
Barring of submissions
Private Reprimand
Public Reprimand
Penalties
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Criminal prosecution may not always be appropriate
• High burden of proof results in inordinate delays
• Costs and resources may be disproportionate to the
results
• Legal and judicial process may be cumbersome
• Reactive, focuses on punishing wrongdoers and not on
compensating victims
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Power to compound provides an alternative to criminal prosecution
• Power is exercisable by the Chairman with the written consent
of the Public Prosecutor
• Accepting a sum of money not exceeding the prescribed limit
• Thereafter no further action can be taken against the same
person for the same offence
• Not applicable for serious offences like manipulation and insider
trading
Section 124
Securities Industry Act 1983
Section 139
Securities Commission Act 1993
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SC has powers to apply to court for various orders
• Powers allow for pre-emptive action
• Orders include injunction, receivership, Vesting
Order and removal of director from a public
company
• A person who disobeys would be in contempt of
court and liable to imprisonment or fine or both
Section 100
Securities Industry Act 1983
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and can institute civil proceedings for market offences
• False trading and market rigging
• Market manipulation
• False or misleading statements
• Fraudulent inducement
• Insider trading
Section 90
Securities Industry Act 1983
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Persons suffering loss as a result of certain securities offences
can also bring civil action
• Available for both primary and secondary market offences
• Criminal conviction is not a prerequisite
• Must prove loss which can include unrealised loss
• Exercise of power dependent on other factors
Section 90A
Securities Industry Act 1983
Section 153
Securities Commission Act 1993
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SC can also seek redress on behalf of aggrieved persons if it is in
the public interest to do so
• In relation to primary market offences
• In relation to insider trading
• There is no need for a criminal action to precede
such civil action
Section 90
Securities Industry Act 1983
Section 155
Securities Commission Act 1993
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SC can exercise various administrative powers
• Require compliance with notices, circulars,
guidelines etc
• Impose penalty not exceeding RM1 million
• Issue public reprimand
• Refuse to accept submissions
• Issue public statements on certain matters
• Appoint independent auditor for licensed persons
• Issue directions to stock exchange or clearing house
• Ensure compliance with conditions of licence
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Regulatory enforcement must be complemented by other initiatives
Disclosure-Based Regulation
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Whistleblowing provisions
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Shareholder activism
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Education /Training
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Investor Alerts
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High quality information disclosure
Those with poor records restricted from seeking
funds from public
Mandatory duty for auditors
Protection against retaliation
Statement of Principles and Code of Best
Practices to Institutional Shareholders
Enhance institutional shareholders’ activism
Directors’ mandatory accreditation programme
Voluntary CPE programmes
Warnings posted on website
Wanted persons
Persons to assist with investigations
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The media has a key role
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Manage issues
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Inform and educate the public
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Instill awareness
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Build goodwill
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Neutralise criticisms
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Seek assistance
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Reassure and restore confidence
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SC’s Enforcement actions 2003-2005
160
140
120
100
Criminal
80
Civil
60
Administrative
40
20
0
2003
2004
2005
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Drop in criminal actions since 2003
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Enhanced powers on administrative and civil action in 2004
and corresponding rise in use of non-criminal actions
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Examples of Recent Enforcement Actions
False and misleading submissions to the SC
for IPO
Hospitech Resources Berhad
– Revocation of approval for listing
– Reimbursement of IPO money
Energro Berhad
– Revocation of approval for listing and
restructuring
– Civil enforcement action for restraint of dealing
in assets and restitution
– Prosecuted accountant and advisor
– Public reprimand of principal advisers and
suspension of submissions to the SC
Insider Trading
Failure to discharge due diligence
responsibilities
Padiberas Nasional Berhad (Bernas)
– Civil enforcement action for insider trading
– Restitution of disgorged profits for aggrieved
investors
Ocean Capital Berhad
– Public reprimand of reporting accountant and
suspension of submissions to the SC
– Public reprimand of principal adviser
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Our enforcement efforts acknowledged internationally
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“Doing
Business in 2006” – World Bank
– Malaysia ranked amongst the top three in regulating the liability of directors and
in requiring the most disclosure of related-party transaction
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CLSA/ ACGA CG Watch 2005
– “Enforcement publicly demonstrated” in Malaysia
– Enforcement milestones achieved through several actions taken relating to
misutilisation of public issue proceeds and submission of false information to the
SC
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World Bank Report on the Observance of Standards and Codes (ROSC)
– Full score for compliance with International Financial Reporting Standards
– Noted the strengthening of disclosure rules and corporate whistleblower
protection
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Lessons learnt
• View enforcement holistically
• Targetted and pre-emptive approach
• Wider use of enforcement tools and clear criteria on actions to be
taken
• Centralise accountability for all enforcement action
• Leverage on the media as a tool of enforcement
• Appropriate arrangements with other regulators vital
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Thank you
Kindly refer to the website of the Securities
Commission for further information regarding
developments in corporate governance in
Malaysia
www.sc.com.my
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