MALAYSIA Law and Practice Contributed by: Dilys Tan, Adnan Sundra & Low
4.14 Other Principal Laws and Regulations Please refer to 1.3 Applicable Laws and Regu- lations . 5. Synthetic Securitisation 5.1 Synthetic Securitisation Regulation and Structure Synthetic securitisations are permitted in Malay - sia. They generally comprise a structure with at least two different stratified risk positions or tranches that reflect different degrees of credit risk – this involves the transfer of credit risk of an underlying pool of exposures by the originator, in whole or in part, by way of credit-linked notes, credit default swaps or guarantees to hedge the credit risk of the underlying exposures. 6. Structurally Embedded Laws of General Application 6.1 Insolvency Laws Securitisation transactions in Malaysia would require that the sale of assets by the origina - tor to the SPE be a “true sale”, such that the assets are beyond the reach of the originator and its creditors in the event of a winding-up of the originator. Please refer to 6.3 Transfer of Financial Assets for further elaboration on the true sale criteria in Malaysia. 6.2 SPEs In Malaysia, the SPE in a securitisation transac - tion would need to have at least the following characteristics. • It must be resident in Malaysia for tax pur - poses.
fers are exempted from obtaining the BNM’s approval. Additionally, financial institutions are also expected to comply with the expectations set out in the Prudential Standards on Securitisa - tion Transactions and the Prudential Standards on Securitisation Transactions for Islamic Banks issued by the BNM, and with other applicable regulatory requirements and guidelines. 4.10 SPEs or Other Entities Please refer to 2.1 Issuers . 4.11 Activities Avoided by SPEs or Other Securitisation Entities As mentioned in 2.1 Issuers , the SPE is incorpo - rated solely for the purpose of the securitisation transaction, and therefore must not undertake any other activities unrelated to the securitisa - tion transaction. The limitations on the SPE’s activities are set out in the constitution of the SPE, as well as a restrictive covenant in the trust deed for the ABS. A breach by the SPE of such covenant would result in an event of default under the ABS. 4.12 Participation of Government- Sponsored Entities Government-sponsored entities in Malaysia do participate in the securitisation market, albeit not frequently. 4.13 Entities Investing in Securitisation Entities that invest in securitisation transac - tions include financial institutions and invest - ment funds. There are no specific rules restrict - ing investments in securitisation transactions by such entities, save for the requirements described in 4.6 Treatment of Securitisation in Financial Entities .
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