Bank Negara Malaysia ('BNM') has on 12 August 2021 issued exposure drafts on the following policy documents:
1.Prudent and Professional Conduct by Financial Advisers ('Exposure Draft No. 1'); and
2. Application Procedures to Carry On Financial
Advisory Business and Islamic Financial Advisory
Business ('Exposure Draft No.
2').
This article highlights some of the main points in Exposure Draft No. 1 and Exposure Draft No. 2 (collectively 'Exposure Drafts').
Scope of application
The Exposure Drafts apply to approved financial advisers under the
Financial Services Act 2013 ('FSA') and
approved Islamic financial advisers under the Islamic Financial
Services Act 2013 ('IFSA'). In addition,
Exposure Draft No. 2 also applies to persons intending to become
approved financial advisers or approved Islamic financial
advisers.
An approved financial adviser under the FSA is a person approved
under the FSA to carry on financial advisory business, that is, any
of the following businesses: (a) analysing the financial planning
needs of a person relating to an insurance product; (b)
recommending an appropriate insurance product to a person; (c)
sourcing an insurance product from a licensed insurer for a person;
(d) arranging of a contract in respect of an insurance product for
a person; or (e) such other financial service as prescribed by the
Minister of Finance.
An approved Islamic financial adviser under the IFSA is a person
approved under the IFSA to carry on Islamic financial advisory
business, that is, any of the following businesses: (a) analysing
the financial planning needs of a person relating to a takaful
product; (b) recommending an appropriate takaful product to a
person; (c) sourcing a takaful product from a licensed takaful
operator for a person; (d) arranging of a contract in respect of a
takaful product for a person; or (e) such other financial service
as prescribed by the Minister of Finance.
For the purposes of the Exposure Drafts, the expression
"approved financial adviser" collectively refers to an
approved financial adviser under the FSA and an approved Islamic
financial adviser under the IFSA, unless otherwise specified
('approved financial adviser').
Exposure Draft No. 1
The following are some of the main requirements under Exposure
Draft No. 1.
Form of establishment
An approved financial adviser must be a company incorporated under
the Companies Act 2016.
Business conduct requirements
In carrying on its financial advisory business or Islamic
financial advisory business, an approved financial adviser is
required to provide suitable product options to meet its
customers' needs from at least three different licensed
insurers or licensed takaful operators for each class of insurance
or takaful business.
An approved financial adviser is required to notify its customer
if there is no suitable and affordable
insurance or takaful product that meets the customer's needs.
It is prohibited from recommending the purchase of any other
insurance or takaful product for the sole purpose of securing a
sale.
Professional indemnity requirement
An approved financial adviser must at all times maintain a
professional indemnity insurance or takaful cover with a minimum
indemnity limit of at least RM200,000 net of deductibles for any
one claim. In addition, the board of directors
('board') of an approved financial adviser
must ensure that the amount and scope of the professional indemnity
insurance or takaful cover is commensurate with the volume and
nature of business of the approved financial adviser at all
times.
Capital funds requirement
An approved financial adviser is required to have minimum capital
funds of RM50,000 which is to comprise of the sum total of (a) paid
up ordinary shares; (b) reserves; (c) retained profits or
accumulated losses; and (d) audited profits for the period, or
audited and unaudited losses for the
Period, excluding loans, advances and investments given to
shareholders, directors or other related parties.
Other permitted business activities
An approved financial adviser is also allowed to carry on any
regulated activities under Part 1 of Schedule 2 1 of the
Capital Markets and Services Act 2007, subject to it being duly
licensed to do so. In addition, it is permitted to analyse,
recommend, source or arrange a contract in respect of banking or
Islamic banking products and services.
Directors and chief executive officer
An approved financial adviser must appoint a minimum of two
directors to its board, one of whom must be its financial
adviser's representative ('FAR'). Each
director must be assessed by the approved financial adviser to have
complied with BNM's Policy Document on Fit and Proper Criteria
for Approved Person.
In addition, it is required to appoint a full-time chief executive
officer who, unless otherwise approved by BNM, resides in
Malaysia.
The board
The board is to have a board charter that sets out the board's
mandate, responsibilities and procedures, including the matters
that are reserved for the board's decision.
The board is to have overall responsibility for promoting the
sustainable growth and financial soundness of the approved
financial adviser and for ensuring reasonable standards of fair
dealing.
To discharge its role, the board must, among other
responsibilities:
- oversee the implementation of the approved financial adviser's governance and internal control frameworks to monitor and ensure compliance with all laws and requirements applicable to the approved financial adviser;
- periodically review whether such implementation remains appropriate, taking into account, among other factors, material changes in the approved financial adviser's customer profiles, product options and external environment that may affect the quality of advice provided to consumers; and
- promote, together with senior management, a sound corporate culture within the approved financial adviser which reinforces ethical, prudent, professional behaviour and gives due consideration to customers' interest.
Senior management
An approved financial adviser must ensure its senior management is
responsible for ensuring that:
- effective policies and procedures are established and implemented for, among others, risk management and appropriate controls to manage and monitor risks e.g. in relation to conflicts of interest, staff conduct and handling clients' monies;
- decision making processes give adequate consideration to customers' interests; and
- a robust assessment is conducted to approve any deviation from policies and procedures and that material deviations are reported to the board.
An approved financial adviser is also required to ensure its
senior management consist of individuals with the appropriate skill
set and experience to support and manage its financial advisory
business or Islamic financial advisory business, as the case may
be.
Financial Adviser's Representatives
An approved financial adviser is to ensure that its financial
advisory business or Islamic financial advisory business, as the
case may be, is only carried on by FARs. Exposure Draft No. 1
contains extensive provisions relating to the criteria for
appointment, on-going training and the basis of remuneration of
FARs2
Notification requirements
Exposure Draft No. 1 also imposes an obligation on an approved
financial adviser to notify BNM in writing within seven days after
the date of the following changes:
- the establishment or relocation of office;
- the appointment, re-appointment, election or re-election of its chairman, director, chief executive officer or appointed FAR;
- the cessation from office of its chairman, director, chief executive officer, senior officer or appointed FAR, and the reason for such cessation;
- appointment or re-appointment of an auditor; or
- cessation of auditor, and the reason for such cessation.
Guidelines to be superseded
When Exposure Draft No. 1 is issued as a policy document, it will
supersede the Guidelines on Application for Financial
Adviser's Licence under the Insurance Act 1996.
Exposure Draft No. 2
Exposure Draft No. 2 sets out the procedures and requirements in
relation to the following applications:
- for approval to carry on financial advisory business or Islamic financial advisory business; and
- for renewal of an approval to carry on financial advisory business or Islamic financial advisory business by an approved financial adviser.
An application for renewal of an approval is to be submitted no later than two months before the expiry of the existing approval.
Exposure Draft No. 2 also sets out the form to be used for the relevant application (within which are set out the information and documents to be provided to BNM).
Guidelines to be superseded
When Exposure Draft No. 2 is issued as a policy document, it will
supersede the Guidelines on Application for Financial
Adviser's Licence under the Insurance Act 1996.
3
Feedback on the Exposure Drafts must be submitted to BNM by
9 September 2021.
Footnotes
1 These regulated activities are dealing in securities, dealing in derivatives, fund management, advising on corporate finance, investment advice, financial planning, dealing in private retirement schemes and clearing for securities or derivatives.
2 See Paragraphs 15.1 to 15.15 of Exposure Draft No. 1.
3 These Guidelines are dated 18 September 2007.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
