The Licensing Process
Under the Capital Markets and Services Act (CMSA) 2007, anyone (other than a registrant) wishing to carry out capital market activities is required to obtain the appropriate licenses. The Securities Commission Malaysia (SC) is the sole licensing body responsible for granting licenses for capital market intermediaries to carry out regulated activities.
Under the CMSA Single Licensing Regime, only one license [will enable] to carry out one or more regulated activities.
Who are licensed by the SC
Under the Capital Markets and Services Act (CMSA) licensing regime, capital market intermediaries need to be licensed to conduct business in any one or more of the following regulated activities:
Dealing in securities
Dealing in derivatives
Clearing for securities or derivatives
Fund management
Dealing in Private Retirement Schemes
Advising on corporate finance
Investment advice
Financial planning
When considering an applicant's suitability for licensure, Securities Commission Malaysia (SC) takes into account the following factors:
- Probity
- Ability to perform such functions efficiently, honestly and fairly
- Financial status
- Reputation, character, financial integrity and reliability
Application
LICENSING CRITERIA
Every CMSL applicant will be required to submit its business model and scope of activities that it plans to carry on.
What are the requirements for a CMSL?
1. Organisational requirements
Incorporation
If you want to carry on any of the following regulated activities, you must be a company incorporated in Malaysia:
• Dealing in securities;
• Dealing in derivatives;
• Clearing for securities or derivatives;
• Fund management;
• Dealing in private retirement schemes;
• Advising on corporate finance; and
• Investment advice.
However, if you want to carry on the regulated activity of financial planning, you may do so either as a company, sole proprietorship or partnership. If you are a sole proprietor or in a partnership, you will be granted a CMSL but you will not be allowed to have any licensed representative acting on your behalf.
Member of an alternative dispute resolution body
CMSL holders who carry on one or more of the following regulated activities are required to be a member of an alternative dispute resolution body (ADR body) that is approved by the SC:
• Dealing in securities;
• Dealing in derivatives;
• Fund management but excluding asset manager managing listed unit trust schemes; and
• Dealing in private retirement schemes.
A CMSL holder that is a member of an alternative dispute resolution body must comply with the rules of the ADR body.
Audit Oversight Board
As a public interest entity, CMSL holders that carry on one or more of the following regulated activities are required to engage auditors that are registered with the Audit Oversight Board:
• Dealing in securities;
• Dealing in derivatives; and
• Fund management.
Capital Market Compensation Fund
Holders of a CMSL for dealing in securities, dealing in derivatives or fund management are required to contribute to the Capital Market Compensation Fund in accordance with the Capital Markets and Services (Capital Market Compensation Fund) (Contribution) Order 2012.
Organisational competence
As a CMSL applicant, you must ensure that your business is properly established, which includes the following:
• An organisational structure with clear lines of responsibility and authority;
• Necessary IT systems and infrastructure, including policies and procedures for IT audit as well as plans for continuous investment in systems development and security system;
• Adequate internal control systems;
• Risk management policies and procedures, including having in place a business continuity plan and processes;
• Policies and procedures on conflict management, anti-corruption, whistleblowing, and the monitoring of unethical conduct and market abuse that are appropriate to the nature, scale and complexity of its business; and
• Policies and procedures to ensure compliance with applicable laws and regulations.
If you are applying for a CMSL to carry out digital investment management activities, you must ensure that you have technology capabilities and support to undertake the digital investment management business. You must–
(a) have sufficient understanding of the rationale, risks and rules behind the algorithm underpinning the digital investment management business;
(b) ensure at all times the outcomes produced by the algorithm are—
(i) consistent with the digital investment management company’s investment strategies;
(ii) commensurate with the risk profile of the investor; and (iii) compliant with securities laws and relevant guidelines; and
(c) have the system to support the digital investment management business which includes maintaining a secure environment pursuant to the Guidelines on Management of Cyber Risk and other relevant guidelines.
In situations where you want to carry on more than one regulated activity, you must demonstrate that you have–
(a) the requisite system and procedures to monitor all relevant activities within your organisation; and
(b) control procedures in place to monitor any conflict of interest, unethical conduct and market abuse.
As part of the business model and scope of activities to support the application for a CMSL, the following may also be required:
(a) Value proposition of the business model;
(b) Investments in creating investor awareness, product understanding and development of the industry; and
(c) An independent report on operational and system readiness.
Digital value proposition
In addition to the above, if you carry on the activity of digital investment management, you must also comply with the digital value proposition, which includes, but is not limited to, the following:
(a) Digital business model
The business model must have a clear value proposition that demonstrates how digital innovations can deliver positive outcomes to its target investors and any other target beneficiaries.
(b) User-centric delivery
Delivery of services to target investors and any other target beneficiaries must include user-centric interface and experience, integrated investor education on the services offered to create greater confidence, trust and engagement, and transparent fee structure.
(c) Automated investment proposition
Automated proposition must involve core components of portfolio management services, including risk profiling, suitability assessment, asset allocation and rebalancing. Applicants may not be eligible if only limited parts or only non-core parts of the investment service are automated.
Fit and proper requirements for directors, chief executive, managers and controllers of a CMSL applicant
General requirements
Your directors, chief executive, managers and controllers must be fit and proper.
Requirement for licensed director
You must have at least one director who–
(a) has a minimum of 10 years of relevant experience in the licensed regulated activity;
(b) holds a CMSRL for the regulated activity; and
(c) must be approved by the SC prior to undertaking the function as a licensed director.
If you are licensed for digital investment management, your director is required to have a minimum of five years of relevant experience in fund management and holds a CMSRL for portfolio management.
If you are licensed for dealing in unit trust products or dealing in private retirement schemes, your director need not hold a CMSRL. However, he must be registered with the FIMM and have a minimum of 10 years of relevant experience in the capital market industry.
If you are licensed for both dealing in unit trust products and dealing in private retirement schemes, you can appoint one director who must be registered with FIMM for dealing in both private retirement schemes and in unit trust products and also have a minimum of 10 years of relevant experience in the capital market industry.
If you are licensed for financial planning and for dealing in unit trust products and/or dealing in private retirement schemes, your director must hold a CMSRL for the regulated activity of financial planning and must be registered with FIMM for dealing in unit trust products and/or private retirement schemes, and also have a minimum of 10 years of relevant experience in the capital market industry.
If you are licensed for fund management in relation to asset management, your director must hold a CMSRL for the regulated activity of fund management in relation to asset management restricted to business trusts or REITs. Your director must show the relevant experience and knowledge in the management of the specific assets invested in by the asset manager, or in the management of a class of asset in a unit trust scheme.
Requirement for head of regulated activity
If you are licensed to carry on more than one type of regulated activity, then in addition to the requirement of a licensed director, you must also have a person with a minimum of eight years of relevant experience to head each additional regulated activity. The requirement for appointing a head for each regulated activity is to ensure that a person with the necessary skills and expertise will provide guidance and supervision to the representatives carrying on that particular regulated activity. However, this requirement is not applicable for the regulated activity of clearing for securities or derivatives.
An individual can be appointed to be the head of more than one regulated activity, provided he is fit and proper, and there is no conflict in him performing such functions. The head must–
(a) hold a CMSRL;
(b) have sufficient authority to supervise the business of the licensed regulated activity; and
(c) be approved by the SC prior to undertaking the function as a head of regulated activity.
Requirement for minimum number of CMSRL holders
You must have at least two CMSRL holders for each regulated activity at all times. If the number of CMSRL holders falls below the minimum requirement of two, you must take immediate steps to fill the position. If you are licensed for dealing in unit trust products and/or dealing in private retirement schemes, you must have at least two individuals who are registered with FIMM at all times.
If you are licensed as a boutique portfolio management company and if the assets under management are RM300 million or less, you must have at least one CMSRL holder at all times and that CMSRL holder must be a substantial shareholder and/or director of the boutique portfolio management company.
A CMSRL holder may be licensed for more than one regulated activity, provided he is fit and proper, and there is no conflict in him performing such activities.
Director
You must at all times have a Bumiputera director on your board. However, this requirement does not apply if you are–
• a special scheme broker, including a special scheme broker promoting investments from the Middle East;
• a special scheme fund manager, including an Islamic fund management company;
• a company which deals in derivatives;
• a company which is licensed for clearing for securities or derivatives;
• a digital investment management company, boutique portfolio management company or an asset management company; or
• an approved insurance broker under section 11 of the Financial Services Act 2013 (FSA) that deals in private retirement scheme or approved takaful broker under section 11 of the Islamic FSA that deals in private retirement scheme.
Representative
You must at all times maintain at least 30% Bumiputera composition of your representatives for your licensed activities. This requirement is not applicable if you are a company which deals in derivatives, an Islamic fund management company, a digital investment management company, a boutique portfolio management company or an asset management company.
If you are licensed to deal in securities and you are a PO and employ remisiers (commissioned representatives), you must maintain a minimum of 15% Bumiputera composition of all your remisiers.
Employee
You must at all times maintain a Bumiputera composition of at least 30% of your employees. However, this requirement does not apply if you are a company which deals in derivatives, a digital investment management company, a boutique portfolio management company, an asset management company or approved insurance and takaful brokers that deal in private retirement scheme or undertakes clearing for securities or derivatives.
Readiness assessment
A CMSL applicant may be required to undertake a readiness assessment by completing and submitting a readiness checklist to the SC when applying to be licensed for a regulated activity or to add on another regulated activity.
The readiness assessment may include, but not limited to, the applicant's risk management system, capital adequacy, system security, organisational structure, operational manuals, information technology, policies and procedures, internal controls and systems, and procedures for compliance with applicable laws and regulations.
Participants of exchange
In the case of a CMSL applicant intending to become a participant of the stock exchange, the derivative exchange or the clearing house for carrying on any of the following regulated activities:
(a) Dealing in securities as a PO;
(b) Dealing in derivatives as a TP; or
(c) Clearing for securities or derivatives as a clearing participant, the applicant must first submit its proposal to the SC for review and, upon obtaining SC’s clearance, engage Bursa Malaysia with the view to satisfy the additional requirements as set out.
The applicant must have–
(a) undergone the readiness assessment conducted by Bursa Malaysia to become a participant of the stock exchange, the derivative exchange or the clearing house, as the case may be; and
(b) obtained an approval in principle from the following:
(i) Bursa Securities to become a PO;
(ii) Bursa Derivatives to become a TP;
(iii) Bursa Malaysia Securities Clearing Sdn Bhd to become a clearing participant; or
(iv) Bursa Malaysia Derivatives Clearing Berhad to become a clearing participant.
Shareholder composition
(1) Except for the shareholding requirement for investment banks which is a minimum of 30% local shareholding, there are no other specific shareholding requirements for the other regulated activities.
(2) If you carry on the regulated activity of fund management in relation to portfolio management, you must also satisfy the following:
(a) You must be a "related corporation" of an entity regulated by the SC or BNM or such other entities as may be approved by SC; or
(b) If you are a company owned by individuals, two of your shareholders whose total shareholding forms the majority (51% or more) in the company must have the requisite track record, as follows:
(i) Each of the two shareholders must have at least 10 years of relevant experience in the capital market; and
(ii) At least one of the two shareholders must have five years of direct experience in fund management in relation to portfolio management activities.
It is not applicable if you carry on the regulated activity of fund management in relation to portfolio management as a digital investment management company.
If you are a stockbroking company that is not an investment bank–
(a) a person who wishes to acquire more than 51% of the total paid-up capital of a PO must be a company or corporation with shareholders' funds of not less than RM100 million; and
(b) no individual other than a Malaysian citizen, may hold up to 10% of the total paid-up capital of a stockbroking company. The aggregate total participation of individuals in the share capital of the stockbroking company shall not be more than 49% of the total paid-up capital.
Adequacy of financial resources
A CMSL holder, regardless of the type of regulated activity that it carries out, must maintain at all times the applicable minimum financial thresholds set out in Table 1.
If you carry on more than one regulated activity, you will be subject to the highest of the minimum financial requirements.
Table 1: Minimum Financial Requirements for a CMSL Holder
Regulated Activity | Minimum Financial Requirement |
Dealing in securities | Investment bank (IB) • Capital funds unimpaired by losses of RM2 billion on a banking group basis, for investment banks that are part of banking groups; or • Capital funds of RM500 million, for investment banks that are not part of banking groups; and • Regulatory capital adequacy ratios and capital requirements as determined by BNM. Universal broker (UB) • Paid-up capital of RM100 million; • Shareholders' funds of RM100 million; and • Capital adequacy ratio of 1.2 or any other financial requirement as determined by the SC from time to time. Stockbroking company (other than IB or UB) • Paid-up capital of RM20 million; • Shareholders' funds of RM20 million; and • Capital adequacy ratio of 1.2 or any other financial requirement as determined by the SC from time to time. Dealing in unlisted debt securities Advising on corporate finance (acting as a principal adviser) • Shareholders’ funds of RM100 million. Dealing in securities restricted to listed securities • Paid-up capital of RM5 million; • Shareholders’ funds of RM5 million; and • Any capital adequacy or other financial requirements as determined by the SC from time to time, depending on the scale and complexity of the business. Dealing in unit trust products (a) Companies wishing to deal in unit trust products as a principal business (for own and/or third-party products) • Paid-up capital of RM5 million; and • Shareholders’ funds of RM5 million. Note: Such companies may use a nominee system. (b) Companies that are licensed for the regulated activity of financial planning and wish to deal in unit trust products • Paid-up capital of RM50,000; and • Shareholders' funds of RM50,000. Dealing in securities restricted to OTC bonds • Paid-up capital of RM5 million; and • Shareholders’ funds of RM5 million, depending on the scale and complexity of the business. |
Dealing in derivatives | Trading participant (TP) • Paid-up capital of RM5 million; and • Adjusted net capital: The higher of |
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Interview
Where necessary, the SC may require applicants for a CMSL or key management appointment to attend an interview to demonstrate credibility and knowledge in their regulated activities.
The applicants are required to submit a Declaration on the physical layout of the business to avoid conflict of interest. The layout plan of business premises is not required.
LICENSING APPLICATION FORMS
Capital Markets Services Licence (CMSL)
Readiness Checklist
Readiness Checklist for New Capital Markets Services Licence
Appendix I: UTMC
Appendix II: IUTA
Appendix III: CUTA
REGISTRATION
CAPITAL MARKET SERVICES PROVIDERS
SUBMISSION PROCEDURE
Electronic Application System (EASy)
Unless specified otherwise, all submissions under this handbook must be made to the SC via EASy, in accordance with the forms and accompanied by the documents as specified in Appendix 3. As licensed persons, you must familiarise yourselves with the system. Further information on EASy can be found in Appendix 2.
New licence application
you can apply for a CMSL or CMSRL to carry on any one or more regulated activities by submitting the relevant forms outlined in Table 7 and the required documentation specified in Appendix 3.
Table 7: Forms for New Licences
Type of Licence Forms
CMSL
Form 1: Application for New Capital Markets Services Licence
Form 1E: Application for New Capital Markets Services Licence – Appointment of Individual / Profile of Individual Shareholder
(director / licensed director / chief executive / key management / compliance officer / responsible person / company secretary / representative / individual shareholder)
CMSRL Form 3: Application for New Capital Markets Services Representative’s Licence
If you apply for a new CMSL, you must apply for at least two CMSRLs for each regulated activity you intend to carry on as a principal.
SUPPORTING DOCUMENTATION
FORM 1: APPLICATION FOR NEW CAPITAL MARKETS SERVICES LICENCE
1. A comprehensive and detailed proposal, which should generally include, but not limited to, the following:
(a) Corporate profile;
(b) Description of the overall ownership and corporate structure – from immediate to ultimate – in the form of a tree diagram depicting:
(i) its related, subsidiary, associate and holding companies;
(ii) percentage of shareholding in each category; and
(iii) description of their roles or services in the named entity’s operations or services to clients, if any;
(c) Profile of corporate and individual shareholders (both direct and indirect);
(d) Details of any of the applicant's related, subsidiary and associate companies, which are or were involved in any regulated activity in Malaysia or elsewhere and their licence, registration and/or authorisation status;
(e) Board composition, management and organisational structure, indicating the actual and the projected staff strength as well as any outsourcing arrangements (as a provider and a client);
(f) Profile of individuals, comprising directors, proposed responsible person(s) and management team members, where applicable, describing, among others, their qualifications, track record, relevant skills and experience, strengths, as well as role(s) and responsibilities in the named entity;
(g) Value proposition;
(h) Business plan for the next five years, detailing, among others, the opportunities identified, market analysis, target market, objectives, strategies, and execution plan;
(i) A five-year financial projection (a profit and loss forecast), with basis for each assumption; and
(j) Compliance with all applicable requirements.
2. Constitution / Memorandum and Articles of Association*
3. Certificate of incorporation under section 17 of the Companies Act 2016*
4. Lodgement under section 68 of the Companies Act 2016: Annual Return** (if not applicable, submit the lodgement under section 14 of the Companies Act 2016: Application for Registration of a Company)
5. Lodgement under section 46 of the Companies Act 2016: Notification of Change in the Registered Address**
6. Company profile from the Companies Commission of Malaysia, containing such details as corporate information, summary of share capital, directors/officers, shareholders/members, company charges, and financial information**
7. Lodgement under section 28 of the Companies Act 2016: Application for Change of Name* (if applicable)
8. Lodgement under section 105 of the Companies Act 2016: Instrument of Transfer of Shares*
9. Latest audited financial statements
10. Latest management accounts (if the audited financial statements are more than three months old as at the submission date)
11. Director’s report on the financial standing, affairs, current assets and contingent liabilities of the company (for the period between the first day of the new financial year and a date within 14 days before the date of submission)
12. List of employees indicating the Bumiputera / non-Bumiputera / foreign status, the employment status and position
13. Operational and compliance manual describing in detail–
(a) reporting principles and procedures;
(b) internal audit procedures;
(c) procedures for compliance with the securities laws; and
(d) risk management policies, which the applicant has adopted or proposes to adopt for its proposed business.
14. Declaration on the physical layout of business to avoid conflict of interest
15. Declaration of compliance with cyber risk management
Additional supporting documentation for the application for dealing in securities and/or dealing in derivatives
16. Participation / Membership certificate of approval in principle for admission from the exchange
17. A duly completed form for the application of compliance officer (at least one)
Additional supporting documentation for the application for fund management in relation to portfolio management
18. Company's portfolio management system manual
19. Details of the funds projected to be managed in the next five years
20. Letter of acceptance from the proposed custodian
21. A completed self-assessment readiness checklist specified by the SC
22. A duly completed form for the application of compliance officer (at least one) Additional supporting documentation for the application for fund management in relation to portfolio management lodged by a company owned by individuals
23. Declaration on loans and credit facilities, pursuant to subparagraph 4.04(5) of the Licensing Handbook Additional supporting documentation for the application for dealing in unit trust products, dealing in private retirement schemes, investment advice, advising on corporate finance, and/or financial planning
24. A completed self-assessment readiness checklist as specified by the SC Others
25. Other relevant documents
* To be certified as a true copy by a notary public / solicitor / company secretary
** To be certified as a true copy by the Companies Commission of Malaysia
FORM 1A: APPLICATION FOR NEW CAPITAL MARKETS SERVICES LICENCE
(to be completed by director / key management / company secretary)
FORM 1B: APPLICATION FOR NEW CAPITAL MARKETS SERVICES LICENCE
(to be completed by director / key management who is also a proposed representative)
FORM 1C: APPLICATION FOR NEW CAPITAL MARKETS SERVICES LICENCE
(to be completed by the first two proposed representatives)
FORM 1E: APPLICATION FOR NEW CAPITAL MARKETS SERVICES LICENCE – APPOINTMENT OF INDIVIDUAL / PROFILE OF INDIVIDUAL SHAREHOLDER
(director / licensed director / chief executive / key management / compliance officer / responsible person / company secretary / representative / individual shareholder)
1. A copy of the individual's NRIC* (for Malaysian citizen) or passport(s)* (for nonMalaysian citizen) (must be crossed out with the remark "For The SC Use Only")
2. A recent passport size colour photograph
3. A copy of the individual's relevant academic certificates* (not applicable to individual shareholder)
4. A copy of the relevant industry examination results / professional certificates and membership
5. A copy of the relevant industry examination results / proof of completion of the SC licensing examination revision courses for the relevant modules / professional certificates and membership* (for proposed compliance officer)
6. Detailed key performance indicators (KPIs) for the chief executive position**
7. Justification for the appointment of chief executive / licensed director**
8. Bankruptcy search results from the Malaysian Department of Insolvency or, if outside Malaysia, the competent authority (no more than 31 days old as at the date of submission)
9. Details of securities sold/purchased by the applicant for his/her own account during the last 12 months immediately preceding the date of this submission
10. Declaration on the ownership and/or directorships to avoid conflict of interest in relation to the regulated activity(ies)
11. Detailed job description / area of responsibility for executive directors (for all types of regulated activity) and head of operations (for stockbroking and participating organisation of the stock exchange only)**
12. A copy of the individual's work permit* (for non-Malaysian citizen)
13. Other relevant documents
* To be certified as a true copy by a notary public / solicitor / company secretary
** Mandatory for the application of appointment of chief executive and/or licensed director, where applicable
Time Client Charter
Our client charter for processing time is as follows:
Six weeks for new CMSL applications which are complete upon submission and meet the SC’s fit and proper criteria.
The SC's Authorisation and Licensing Department evaluates licensing applications within its remit within a defined time frame.
New CMSL Application
6 weeks
FEES
Application and licence fees in respect of the grant and variation of a Capital Markets Services Licence and a Capital Markets Services Representative's Licence
Capital Markets Services Licence
Activity Fee Payable (RM)
1. Application for a licence. 50
2. Licence fee payable by a licence holder which is a company, for a period of 12 months or any part thereof for- (a) any first regulated activity; and (b) each subsequent regulated activity. 2,000 1,000
Capital Markets Services Representative's Licence
Activity Fee Payable (RM)
1. Application for a- (a) licence; or (b) variation of a licence. 50
3. Licence fee payable by a licence holder for a period of 12 months or any part thereof, for any number of regulated activities 200
Application and licence fees
If you are a CMSL holder that is a company, the annual licence fee payable is–
(a) for any first regulated activity, RM2,000; and
(b) for any subsequent additional regulated activity, RM1,000 each.
If you carry on more than one regulated activity, the licence fees payable will be the aggregate amount.
If you are a CMSRL holder, the annual licence fee payable is RM200, regardless of the number of regulated activities you carry on for your principal.
https://www.sc.com.my/regulation/licensing/application-procedures-for-trading-on-specified-exchanges
Contact
For any enquiries in relation to this chapter, you may contact: Corporate Finance and Investments
For more information, please click the links below