MyCC tells Professional Bodies to dismantle Scale of Fees

The Malaysia Competition Commission (MyCC) has issued letters to four professional bodies requiring them to dismantle their scale of fees in order to uphold the spirit of competition law. MyCC was of the view that scales of fees fixed by professional bodies were contrary to the provision of Competition Act 2010 (CA 2010). It said the Malaysian Institute of Arbitrators (MIArb) had already dismantled their scale of fees.

MyCC is reported to have given each professional body up to 30 days to comply with its requirements for the dismantling of the fees.

As part of the engagement process with the professional bodies on the fixing of scale of fees, MyCC conducted a public consultation session on May 19, 2014.

MyCC conducted a study on professional bodies which can be found here.

Source: MyCC

Malaysia committed to implementing Trade Facilitation Agreement

Sourced from here.

Malaysia is committed to implementing the Trade Facilitation Agreement (TFA) and is ready to commit almost 100 per cent of the provisions under Category A in the Agreement, which will be notified by July 31, 2014, says Datuk Seri Mustapa Mohamed.

The International Trade and Industry Minister said Malaysia has always been a strong advocate of trade facilitation, pointing out that it benefits both the business community and governments in developed and developing economies as well as create jobs and contribute towards economic growth.

"The global economy requires certainty and predictability and this requires the World Trade Organisation (WTO) and APEC to play a leading role in monitoring trade-distorting and protectionist measures that will have adverse impacts on global economic recovery," he said in a statement Sunday.

Mustapa also emphasised the need to remain vigilant to prevent the proliferation of protectionist and trade-distorting measures, while calling on economies to firmly resist any protectionist measures and refrain from raising barriers to international trade.

"Instead, they should continue efforts towards the establishment of a more liberalised and fair global trading environment.

"In addition, Malaysia supports the proposal to extend the APEC standstill commitment as well as the rollback of protectionist and trade-distorting measures through the end of 2018," he said.

Malaysia is concerned at the lack of progress in concluding WTO's Information Technology Agreement, and urges all parties to move away from their entrenched positions and be pragmatic, he said.

"Malaysia will be actively involved in the negotiations and we hope that all economies can work extra hard for the swift conclusion of the ITA expansion," Mustapa said.

Malaysia supports the new initiative on APEC Strategic Blueprint for Promoting Global Value Chains (GVC), he said, adding the blueprint should be designed to facilitate GVC development through a systematic approach.

The enhanced collaboration among economies will help small and medium enterprises (SMEs) to enhance their capacity and capabilities and encourage investment in value-added activities including manufacturing related services among others, he pointed out.

"In addition, GVC should provide the gateway for SMEs to be integrated into the global network which should be a priority for APEC economies in the years ahead," Mustapa added.

Tough times for trustees in Malaysia

The recent Federal Court decision in the Pesaka Astana bonds case is said to have "rattled the bond market" in Malaysia.

The case involved many issues centering about the duties and responsibilities of the lead arrangers for bond issuances and, equally importantly, the role of trustees in relation to the protection or, "ring fencing" of assets used to secure the bond issuance.

One of the important issues in the case involved the apportionment of liability between the lead arranger and the trustee in relation to the losses suffered by bondholders.

Lead arrangers are off the hook?

The Federal Court decision gave much weight to the cautionary notice contained in information memoranda (IM) and prospectuses. The Federal Court ruling appears to absolve and release lead arrangers from further responsibilities in bond issuances for so long as the cautionary notices are set out and highlighted in IM and prospectuses.

The implication of that ruling appears to put an onerous burden on bondholders to make their own detailed due diligence inquiries on every prospective bond issue.

In the complex and high-speed world of debt markets and capital markets the Federal Court ruling is well and truly a possible "spanner in the works" for the Malaysian debt and capital market.

How much weight to give IM?

Prior to the Federal Court ruling, the debt market practice would be for most bondholders to rely on the representations and advisory contained in IM issued by the issuing company but put together by the lead arranger and advisers.

The dilemma of prospective bondholders in the wake of the Federal Court ruling is, "How much weight do we give representations in the IM?"

This takes the contract principle of caveat emptor to a whole different level in the context of debt markets, in the form of IM and, with possible shockwaves to the capital markets, in the form of prospectuses.

Trustees bear the whole brunt of liability?

That said, what about the plight of the hapless trustee companies who are meant to be the custodians of secured assets in debt instrument issuances?

The risk profile for trustees to act as custodians for debt instruments just went to a completely different level; not in a good way. Actuaries will have their work cut out for them to calculate new liability levels of trustees.

In the matter of apportionment of liability here's the possible score at different stages of the Pesaka Astana bonds case-

Court                    Lead Arranger's liability  Trustee's liability

High Court                60%                                     40%

Court of Appeal        50%                                     50%

Federal Court              0%                                   100%

Interest Schemes, the Malaysian economy and the way forward

In early 2013, just days before the Chinese Lunar New Year, the management company for the Country Heights Growers Scheme (CHGS) announced plans to voluntarily terminate CHGS. 

In order to do so, it needed to convene a General Meeting of CHGS investors, also known as, Growers. The events surrounding the announcement and the lead up to the actual General Meeting was widely covered by the media. As such, there is no need to revisit the events.

Instead, it is far better to examine the nascent Interest Scheme sector and its economic contribution to corporate fundraising for SMEs and, even large corporations.

Fast forward to the present, media reports here indicate that the CHGS investors will begin to receive the first instalment of a full refund of their investment capital and the final annual nett yield payment.

In the wake of the announcement of the voluntary termination and the lead-in into the General Meeting of CHGS investors, many media commentators gave their views. As always, some views were pertinent and many others were borne from knee-jerk and a superficial understanding of the matter at hand.

Now that the dust is settling it is timely to better understand the burgeoning Interest Scheme sector and regulatory challenges.

Regulatory perspectives

Interest Schemes come within the regulatory framework governed by the Companies Commission of Malaysia which is better known as Suruhanjaya Syarikat Malaysia (SSM). 

This regulatory framework deals, among other things, with corporations, enterprises and businesses that seek to create a pool of partners and investors linked by contractual arrangements and a legal trust relationship. The pooling of partners and investors with the goal of sharing enterprise risk and reward is called a "common enterprise".

How did the current regulatory framework fare when tested by recent events?

Firstly, the mechanism followed assiduously by the voluntary termination of an interest scheme is materially similar  to many approved corporate debt financing schemes in the Malaysian and, even international, capital market. 

Secondly, the regulatory framework is in line with basic and internationally-accepted principles of corporate regulation on the matter of investor protection. In particular, each new partner or investor must be given the latest copy of the prospectus governing an SSM-approved common enterprise scheme. 

Thirdly, still on the matter of investor protection, risk factors are categorically set out in each prospectus together with an audited financial statement that details the state of play of the scheme promoter and the underlying enterprise. The prospectus for each common enterprise scheme is required to be renewed and updated every 6 months.

Fourthly, SSM requires an independent consultant with experience and familiarity with the underlying enterprise, be it oil palm plantations, agro-fisheries or technology enterprise, to audit the enterprise operations and prepare a report for inclusion in the prospectus and updated with each renewal.

Add to the above factors many compliance features including monitoring of funds flows and site visits and inspection by SSM officials and the scheme's trustees, there are adequate safeguards directed primarily at the basic principle of investor protection. These safeguards are in line with the best regulatory practices adopted by capital market regulations.

Business risks and returns

A reasonable comment from an objective reading of the the matters set out above would be; if the regulatory framework and safeguards were all that good, then, why was there a need for voluntary termination by an interest scheme?

The starting point is to recognise that investing in a  business enterprise is all about risks and returns. As such, in the context of good corporate governance and regulations, every corporation that seeks to reach out to the investing public for funds are required to prepare a prospectus.

This is true for corporations operating in the capital market regulated by the Securities Commission and true also, for bank and financial institutions regulated by Bank Negara Malaysia. This is equally true for corporations seeking to raise funds under common enterprise schemes regulated by the SSM.

Even with the detailed regulations and guidelines for corporations operating in the capital market there have been occurrences of  corporate issues surrounding so-called privatisation exercises by public-listed corporations. For example the privatisation of Maxis and more recently MISC. In almost all cases of such privatisations, there have been minority shareholders who disagreed with the privatisation plan. Still, in accordance with the rules and regulations available, the will of the majority prevailed. This is how it should be under current corporate governance principles.

In fairness to SSM and the Interest Scheme sector, there are many material similarities between privatisation exercises in the capital market when compared with voluntary termination of an Interest Scheme. This is something media commentators overlooked.

Investor protection

What do these capital market occurrences tell us when we review the Malaysian Interest Scheme sector?

We can surmise that regulators and stakeholders must be ever vigilant about corporations that tap public investment funds. This is the all-important corporate governance principle of investor protection.

In spite of the best efforts of regulators and stakeholders, do investor protection provisions cater for the ever-changing environment of businesses?

In the event where there is intentional corporate malfeasance, do the investor protection provisions truly protect the investors?  Can more be done to protect investors?

What happens when business enterprises are operating properly, as was  evidently the case with CHGS whose oil palm plantations was in profit, except that the level of profits was not commensurate with the nett yield obligations?  Would investors wish to vote for the Scheme to remain operating and for the nett yield obligations to be varied?  Or would a buyback option or put option mechanism accord a better protection?

The intent behind corporate regulations including those applicable to Interest Schemes is to institute and ensure disclosure of business risks by requiring timely disclosures of corporate financial and operational health. 

A closer examination of the prospectuses published by Interest Scheme companies will show that such disclosures are contained in chapters on the accountant's report and the report of the independent consultant.

Disclosure obligations under Interest Scheme regulations compares favourably with disclosure rules in the capital market. Naturally, there is always room for improvement.

That said, public investors and regulators need to recognise that it is impossible to eliminate business risks.

The way forward for Interest Scheme regulations

It should be noted that in spite of occasional controversy by participants in their jurisdiction neither the Securities Commission nor Bank Negara Malaysia has ever shrunk away from regulating existing corporate activities in their respective jurisdictions.

Nor have either regulator shrunk away from further approvals of new corporate activities.

The SSM should, likewise, continue to strengthen the regulatory framework for Interest Schemes and continue to encourage and cultivate SMEs and large corporations to conduct corporate fundraising through Interest Schemes.

The Australian experience in this self-same area is very relevant and instructive. What we, in Malaysia, call Interest Schemes are known as Managed Investment Schemes (MIS) in Australia.

Has the Australian MIS sector been problem-free since its rise in the 1980s? Of course, not. You can read about some bad episodes here and here.

The point for the SSM to note is that its fellow regulators in the form of the Securities Commission, Bank Negara Malaysia and, even the Australian Securities and Investments Commission (ASIC) have endured corporate failures by market participants in their respective jurisdictions.

And, more to the point, not once did any of these regulators declare that they were abandoning the processing and approval of new entrants.

The reason is pure and simple; corporate activities such as corporate fundraising via Interest Schemes are part and parcel of the economic rubric.

Remove avenues such as Interest Schemes and the Malaysian economy would be that much poorer.

And, let's not even get started on the futility of policing unregulated corporate fundraising schemes if there is no avenue to allow promoters of such schemes to comply with regulations.

So, the hope expressed here is that SSM shrugs off the naysayers and dusts off the negativity in order to move forward to strengthen Interest Scheme regulations and continue the all-important role of processing and approval of new entrants for the benefit of the Malaysian economy.

Additional perspectives can be found here.

Land banking companies in UK found guilty of unlawful investment sales

James Maynard of Countrywide Land Holdings faces ban and £32m fine to FSA for unauthorised sales to UK consumers

The Financial Services Authority (FSA) found three land banking companies guilty of unlawfully selling plots of land to UK consumers, and imposed a ban and fines of £33m. Photograph: Clive Gee/PA

Jill Insley

guardian.co.uk, Wed 21 Mar 2012 11.55 GMT

Three land banking companies who sold plots of land unlawfully to UK consumers have been ordered to pay a total of £33m to the Financial Services Authority.

The high court ruled that James Kenneth Maynard, Countrywide Land Holdings Limited (Countrywide) and Plateau Development & Land Limited (Plateau) operated collective investment schemes without authorisation.

Maynard, who operated through the trading names Regional Land and Countrywide, has been banned for life from selling for business purposes in the UK, and has been ordered to pay just under £32m to the FSA. A bankruptcy order has also been made against Maynard, who is believed to be living in Northern Cyprus.

Plateau, which is now in liquidation, was instructed to pay £918,975, while the firm's director Wasim Minhas, has been ordered to pay £75,000.

However, the regulator has warned that victims are unlikely to get any of their money back. Although the FSA is trying to trace the funds paid by investors, it not yet identified any assets that would enable more than a small proportion of these payments to be made, and therefore it is unclear how much will ultimately be returned to investors.

Maynard, Countrywide and Plateau sold plots of land across the UK with the promise that investors would make a significant profit when the land obtained planning permission and was sold. Investors were also told by sales staff that Maynard, Countrywide and Plateau would apply for planning permission for the land or that they had corporate buyers lined up to purchase the sites.

In reality there was no intention to seek planning permission or help buyers sell their land and the plots were in locations unlikely to ever gain planning permission, such as areas of outstanding natural beauty.

The Guardian and Observer warned readers about the risks of investing in land banking as far back as 2006.

The FSA first obtained injunctions against Maynard and Countrywide in August 2010 to freeze assets and stop them from selling more land. But the regulator then discovered that Plateau had been set up subsequently to continue the business. It secured a similar injunction against Plateau in December 2010.

The FSA does not regulate the sale of land, but deemed that land banking amounted to a collective investment which does require its authorisation.

Because these schemes were unauthorised, their victims are not protected by the Financial Services Compensation Scheme.

Tracy McDermott, acting director of enforcement and financial crime at the FSA, said: "We have to be realistic about the low probability of securing meaningful compensation for victims of these scams, but this is still an important victory. Proving that a land bank is operating a collective investment scheme – and should therefore be FSA authorised – is very complicated, so every success puts us in a stronger position to tackle other schemes."

McDermott said the decision should send a clear message to other land banks.

"We have also started court actions against others that we believe have been involved in Maynard's scheme.

"Anybody investing in land should always have it independently valued to check its worth. Furthermore, if you are ever sold land as an investment with the promise of fabulous returns, and on the basis that someone else will manage it for you as part of a wider site, you should check the firm is authorised by us."

Anyone who believes that they may have been contacted by a land banking operation or any other unauthorised financial services provider can call the FSA's consumer helpline for guidance: 0845 606 1234. The regulator has produced a video explaining what land banks are which is available on the FSA website.

Sourced from here.

Cautionary investment tales

Bill Singer has written an excellent piece in Forbes that offers good cautionary advice for income-starved investors. The piece resonates beyond the U.S. and is certainly highly relevant to Malaysian investors.

Interestingly he also addresses the difficulty that market regulators have in balancing the need to keep a fair and orderly open market where the investor should beware and act rationally against the necessity of policing the market for highly fluffy investment products that promises much but are dodgy on delivering actual yields. Read on---

Beware of Alternative Higher Rates of Return For Your Fixed Income Portfolio

The other day, the folks at the North American Securities Administrators Association (‘NASAA”) issued a press release:NASAA Cautions Investors Not to Stumble When Interest Rates Fall Flat (February 1, 2012). After reading the release, I feel pulled in two diametrically opposite directions when trying to write this column. There’s a lot of good stuff in the release, but there’s also a lot of bad stuff. I start off with “On the one hand . . .” but inevitably swing over to “On the other hand . . .” So — let’s get on with it.

On the One Hand

On the one hand, NASAA issues an absolutely valid, worthwhile, and intelligent warning:

Following the Federal Reserve’s announcement that interest rates are expected to remain low until at least late 2014, the North American Securities Administrators Association (NASAA) today cautioned investors to beware of risky or outright fraudulent investments promising higher yield or returns.

That’s truly great advice – and couldn’t be more timely! Kudos to the state and provincial regulators at NASAA!

With interest rates barely in the single digits and likely to stay there for some time, a lot of folks are antsy.  If you factor in a modest degree of inflation, some fixed income products are actually losing ground and technically costing you money to own them.  The problem with that somewhat dicey logic is that you then have to consider whether there is a safe alternative to earning a pittance on your bonds or similar investments.  In anticipation of such investor ruminations, NASAA offered this quote:

“Investors running away from low yields on fixed investment products risk stumbling into the arms of unscrupulous salespeople promising low risk and high returns,” said Jack E. Herstein, NASAA President and Assistant Director of the Nebraska Department of Banking & Finance Bureau of Securities. “Don’t chase the offer of high yield or returns into a dead-end investment.”

Herstein said that state and provincial securities regulators are concerned that individuals who depend on fixed income investments, particularly seniors, may be tempted to turn away from their slower growing but safe investments to alternative investments without understanding the risks and terms.

CCM introduces Limited Liability Partnership as New Business Vehicle

The Companies Commission of Malaysia has introduced a new business vehicle called the limited liability partnership (LLP) as an alternative for businessmen to conduct business.

The Limited Liability Partnership Bill 2011, passed by Dewan Negara yesterday and slated for implementation mid-next year, will allow the public more options to choose their nature of business vehicle, either in the form of a company, sole proprietorship or partnership firm.

In a statement, the commission said the LLP would combine the characteristics of a company and partnership firm but provide the protection of a limited liability for its partners.

Domestic Trade, Cooperative and Consumerism Datuk Seri Ismail Sabri Yaakob was quoted as saying in the statement that the initiative taken by the ministry, through the commission, was to enable the country become more competitive in line with the government's call to simplify procedures, reduce business administrative cost and compliance requirements for the business community.

"It is timely for the business community to be given the option of a business vehicle which would offer flexibility in terms of its formation, maintenance and termination," he said.

While saying that the LPP would have the necessary dynamics, Ismail Sabri added that the LLP would complement the traditional choice of sole proprietorships, partnerships or companies which would provide businessmen and investors the flexibility and the freedom to select the best business model that suited their needs and requirements.

"The LLP concept will also support new businesses, small-and-medium enterprises and professionals to grow their businesses without having to worry too much about their personal liabilities, assets and strict compliance requirements", he added.

As of November, there were 964,612 companies and 4,623,513 sole proprietorship and firms registered with the commission.

Professional accounting, audit and law firms are expected to convert their mode of business into a limited liability partnership, following the introduction of the new business vehicle.

Sourced from here.