MALAYSIA Law and Practice Contributed by: Dilys Tan, Adnan Sundra & Low
4.7 Use of Derivatives In Malaysia, no specific laws or regulations apply to the use of derivatives in a securitisation trans - action. 4.8 Investor Protection In general, the regulatory framework in Malay - sia relating to securitisation transactions and bonds/sukuk transactions aims to protect the rights of investors. The CMSA requires that any documents submitted to or lodged with the SC do not contain any statements or information that are false or misleading, and that there is no material omission from such documents. Additionally, the LOLA Guidelines and the PHS Guidelines prescribe minimum contents to be disclosed in disclosure documents. All these are intended to ensure that investors can make an informed assessment of the ABS into which they are investing. The SC is the regulator for capital market instruments, and civil and criminal liabilities are imposed on the responsible party (as identified in the LOLA Guidelines). 4.9 Banks Securitising Financial Assets In general, financial institutions in Malaysia are required to comply with the requirements of the Financial Services Act 2013 (FSA) and the Islamic Financial Services Act 2013 (IFSA). Pur - suant to Section 100(1) of the FSA and Section 112(1) of the IFSA, the BNM’s approval must be obtained for a financial institution to enter into an agreement or arrangement for a scheme to transfer the whole or any part of the business of such financial institution. However, for the pur - poses of securitisation transactions where the underlying financial assets are not serviced by a licensed person – ie, the SPE – such trans -
to the Capital Markets and Services Act 2007 (CMSA) and the Guidelines on Credit Rating Agencies issued by the SC. Presently in Malay - sia, only two RAs are registered with the SC: • RAM Ratings Services Berhad; and • Malaysian Rating Corporation Berhad. 4.6 Treatment of Securitisation in Financial Entities Bank Negara Malaysia (BNM) regulates the banking and financial sector in Malaysia, and Part F of the Capital Adequacy Framework (Basel II – Risk-Weighted Assets) and the Capital Adequacy Framework for Islamic Banks (Basel II – Risk-Weighted Assets) issued by the BNM set out the securitisation framework. This framework outlines the approaches in determining regulatory capital requirements on exposures arising from securitisation trans - actions, and the operational requirements for allowing regulatory capital relief for originating banking institutions. Under the securitisation framework, all finan - cial institutions, whether acting as originators or as third-party investors, must hold regula - tory capital against all securitisation exposures in the banking book. Regulatory capital relief is granted based on the assessment of whether risks under a securitisation transaction have been effectively and significantly transferred. An originating banking institution may, upon receiv - ing the written approval of the BNM for capital relief, exclude the underlying securitised assets from the calculation of risk-weighted assets or may reduce the capital requirement using credit- risk mitigation techniques.
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