The SEC reviews guidelines for capital market products that are not listed under the filing and launch framework

Malaysian Securities Commission (“sc) issued Issue 15^y review Guidance on unlisted capital market products under the framework and offering ((UCMP Guidelines’) on August 29, 2023. This revision of the UCMP Guidelines became effective on the date of issue and replaced 14^y Review the guidelines of the same name (“Replaced guidelines“).

Modifications submitted under the UCMP Guidelines will, inter aliaenable operators¹ and money management companies to make available wholesale funds that invest in alternative investment products, such as digital assets.

On the same day, the Supreme Committee announced amendments to the Guidelines for Offering, Marketing and Distribution of Foreign Funds (“OMDFF Guidelines“) in order, among other things, to introduce the Alien Exemption Scheme (“the”AxeA framework to provide accredited investors and high-net-worth entities with greater access to foreign investment funds.

This article will highlight the notable modifications to the UCMP Guidelines while our article on the modifications to the OMDFF Guidelines is accessible here.

New definitions

The following new definitions have been added to Paragraph 2.01 of Section A of the UCMP Guidelines:

• “CMSL” means a Capital Markets Services License granted to a person pursuant to Section 61 of the Capital Markets and Services Act 2007 (“”CMSA“);
• “Digital Asset” means Digital Currency or Digital Token, and “Digital Currency” and “Digital Token” have the meanings ascribed to them in the Capital Markets and Services (Securities Prescription) (Digital Currency and Digital Token) Order 2019;
• “Foreign Waiver Program” has the meaning ascribed to it in the OMDFF Guidelines;
• The term “IEO Operator” shall have the meaning ascribed to it in the SC Digital Asset Guidelines; And
• “Investment Account” has the meaning ascribed to it in the Islamic Financial Services Law 2013.

The definition of “corporate bonds” has been amended to refer to “bonds as defined in CMSA but does not include structured products” to align with the current definition in other Supreme Court guidelines.

Wholesale Funds – Part 1 of Section B of the UCMP Guidelines

income distribution

Pursuant to Paragraph 2.15 of Part 1 of Section B of the Repeal Guidelines, the instructions in the Guidance Box apply only to Subparagraph (b) of Paragraph 2.15 (ie, for an out-of-capital distribution). Revised Paragraph 2.15 of Part 1 of Section B of the UCMP Guidelines now states that the Guidelines apply to both forms of income distribution set forth in subparagraphs (a) and (b) of Paragraph 2.15.

Expansion of permitted investments

Paragraph 2.20(b) of Part 1 of Section B of the Repeal Guidelines prohibits a fund management company that raises its clients’ funds for investment through an SPC from investing in any asset other than: (a) conventional and Shari’a-compliant securities; (b) derivatives; (c) money market instruments. (d) Deposits in conventional and Islamic deposit accounts. and (e) real estate located outside Malaysia.

Paragraph 2.20(b) of Part 1 of Section B of the UCMP Guidelines has been amended to allow an operator or fund management company that raises its client funds for investment through an SPC, to invest in assets other than those listed in subparagraphs (a) through (e) ) from the previous paragraph, provided that he has a policy and procedures for managing the fund’s risks in an independent document that enables the fund management company or its operator to effectively monitor, measure and manage the risks of investment centers. Fund and their contributions to the Fund’s risk profile including all related risks associated with investments in underlying assets.

Additional requirements for investing in digital assets

A new paragraph 2.22 has been added to Part 1 of Section B of the UCMP Guidelines to require the money management company of a local wholesale fund that invests in digital assets to:

1. ensure that any cryptocurrency trading platform outside of Malaysia or other counterparty that it relies on: (i) is registered or subject to the laws of one or more foreign countries and gives effect to FATF recommendations on customer due diligence and record keeping; (ii) has risk-based AML/CFT systems and controls that are supervised or monitored by a body authorized by law to supervise the client and enforce due diligence and record-keeping obligations; And
2. Have a fund risk management policy and procedures in an independent document that would enable the fund management company to effectively monitor, measure and manage the risks of the fund’s investment positions and their contributions to the fund’s risk profile, including all related risks. risks associated with investments in digital assets; And
3. Ensure that any investment in Digital Tokens is limited to those hosted for offering through an electronic platform by the IEO Operator and such other Digital Tokens as the SC may permit from time to time.

A new paragraph 2.23 of Part 1 of Section B of the UCMP Guidelines clarifies that for any investment in Digital Currency, such investment is not limited to those that have received SC approval to trade on an electronic platform that facilitates the trading of Digital Currency. currency.

The new Paragraph 3.01A of Part 1 of Section B of the UCMP Guidelines requires the money management company of a wholesale fund that intends to invest in digital assets, to submit the risk management policy and procedures pursuant to Paragraph 2.22(b) of Part 1 of Section B of the UCMP Guidelines to the SC, Eight weeks prior to the wholesale fund filing under UCMP guidelines.

Investments in investment accounts

A new paragraph 2.24 has been added to Part 1 of Section B of the UCMP Guidelines to require a money management company or domestic wholesale fund operator that invests in a restricted investment account (RIA) or unrestricted investment account (UIA) that is not a money market instrument, to:

1. Ensure that the investment account specified for investment by the fund is consistent with the objective of the wholesale fund;
2. To have a fund risk management policy and procedures in an independent document, which will enable the fund management company or operator to effectively monitor, measure and manage the risks of the fund’s investment positions and their overall contributions to the fund’s risk profile including all relevant risks associated with investments in underlying assets including credit risk and liquidity risk; And
3. Independently verifying the methodology for evaluating the said investment account.

An indicative box has been added to Paragraph 2.24 to provide clarity on the investments in the investment account.

Minimum document submission requirements

A new Chapter 7 has been added to Part 1 of Section B of the UCMP Guidelines to specify the minimum disclosure that will be included in the offer document for a wholesale fund. These include, among others, the following requirements:

1. The fund management company or operator must provide investors in the wholesale fund with an offer document containing all necessary information that will enable investors to make an informed assessment of the offer;
2. The Offer Document must contain the information listed in subparagraphs (a) through (k) of Paragraph 7.02 of Part 1 of Section B of the UCMP Guidelines, including, among other things, the following: (i) the composition of the fund; (ii) the management company, or, in the case of a foreign wholesale fund, the operator and representative in Malaysia; (iii) the guardian or trustee and custody arrangements; (4) the Fund’s investment objective, policies and strategy; (v) the risks associated with the Fund’s investment portfolio, or where investments are held through a special purpose company, the underlying assets of such a special purpose company; (6) the fund manager; (vii) the rights and obligations of the Unitholders; (viii) asset valuation, including determination of the fund’s net asset value and net asset value per unit; (ix) the procedures for subscribing and redeeming Units; (x) fees and charges relating to the Fund; And
3. The offer document is submitted to the SC before it is presented to the investors.

Foreign Exemption Scheme – New Part VI Part B of the UCMP Guidelines

The new Part 6 of Section B of the UCMP Guidelines sets out requirements related to the FES, the Foreign Exemption System. These include:

1. FES must comply with OMDFF guidelines before it can be introduced and launched in Malaysia;
2. responsible party² And the deposit party³ The owner of an FES institution must: (i) hold a Capital Markets Fund Management Services license in relation to portfolio management and be a company related to the operator; or (ii) the operator, if it is the holder of a capital markets services license mentioned in paragraph (b)(i) of this Agreement;
3. The depository party must submit all information and documents as set out in the Depositary Toolkit⁴ with the SC via e-mail or in any other manner as the SC may specify;
4. The responsible party must submit the information as specified in the Filing Toolkit to the FES Annual Submission Higher Committee within 14 working days after December 31 of each year; And
5. The responsible party must notify the SC to stop distribution of the Friedrich Ebert Foundation in Malaysia; Notification shall be made as soon as practicable and, in any case, no later than the next annual submission of FES statistical information and documents to the SC.⁵.

transitional arrangements

Fund management companies of existing wholesale funds that were filed and launched before August 29, 2023 are given a transition period of six months (i.e., until February 28, 2024) to make the necessary amendments to the wholesale fund documents and are required to submit their revised documents under the LOLA online application system⁶ by the end of the transitional period.⁷

comments

A broadening of the range of investments that may be included in wholesale funds under UCMP guidelines, including digital assets, is welcome. To protect investors, the offering of digital assets is subject to additional requirements.

The mandatory information requirements to be included in the offer document for a wholesale fund under the new Paragraph 7.02 of Part 1 of Section B of the UCMP Guidelines will ensure that investors are provided with a level of information that will enable them to make informed decisions about whether or not to invest in the fund.