Monday, December 14, 2015

Interest Schemes Bill 2015 Malaysia

After some gestation time, the Interest Schemes Bill 2015 has been tabled for First Reading at the last Parliamentary Session. With the First Reading, the passage of the legislation should be relatively smooth and we expect to see the enactment some time in 2016.

It is interesting that the Companies Commission of Malaysia (better known with its Bahasa Malaysia name, Suruhanjaya Syarikat Malaysia or SSM) made the determination that the interest scheme sector that has been regulated under the Companies Act 1965 deserves a separate regulatory framework. Many industry players regard this as a positive move.

The Federation of Interest Scheme Operators Malaysia (FISOM) hails this new legislation as an important first step in the SSM's big picture plan to address the crying need for funding solutions for the small and medium enterprises (SME) sector in Malaysia.

In one sense, the Interest Schemes Bill transitions the regulation of right to use public offerings such as sports and recreational clubs and timeshare as well as common enterprise investment models from the Companies Act 1965 to the new regulatory framework.

In another sense, the new Bill offers another alternative to SMEs for medium to long term funding that is quite outside of the conventional capital market and financial market models of equity and debt instruments.

Interest schemes is a medium that facilitates the matching of SMEs with funding needs to expand their enterprises and businesses with astute investors who have an appetite for a regulated exotic investment product that allows them to enjoy direct returns on their investments. Where equity investments depend upon dividend returns, common enterprise investment models offer either contractually committed annual or semi-annual payouts calculated on the percentage value of the investment or, as a percentage of gross profits or net yield.

Due to their relative ignorance of the potential of the Malaysian common enterprise interest scheme sector, the Malaysian capital market intermediaries and the financial press media tend to be reticent and outright cynical about the relative importance and role that common enterprise interest schemes can play in the development of the Malaysian economy. Their conventional wisdom is that only the Securities Commission knows best.

It should be pointed out that the precursor to the Capital Markets and Securities Act 2007 was the Securities Industry Act 1983 that was actually managed and regulated by the Registry of Companies (ROC) which is now better known by its statutory alter ego, the SSM. Within the old ROC was a body known as the Capital Issues Committee (CIC).

It was only in 1993, that the Securities Commission was created from the proverbial rib of the ROC via the Securities Commission Act 1993.

It should also be pointed out that, within the existing regulatory framework, the procedure for the prescription of securities is still at the behest of the Minister responsible for the Companies Act 1965.

It is rather unfortunate that the commonplace perception is that the SSM's statutory role is confined only to the regulation of the incorporation of companies and company secretaries. This misconception must be dispelled through greater public awareness of the important economic role played by the SSM beyond company incorporations and company secretaries.

Together with Bank Negara Malaysia, SSM is the leading regulator that protects Malaysian investors against investment scams. And, as the principal regulator that deals with ALL incorporated business entities in Malaysia, SSM is the most appropriate government agency to look into and, address the need to facilitate the SME sector's funding needs via the common enterprise interest scheme model.