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Malaysia's new guidelines for capital market promotions

Chris Hamblin, Editor, London, 26 May 2020

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The Securities Commission of Malaysia has issued its Guidelines on Advertising for Capital Market Products and Related Services. The aim is to make things more 'flexible' for 'buy-side' capital market service providers such as private banks, along with issuers on the 'sell side.'

The SCM has written: "Advertisers can now take advantage of social media, messaging applications [and] video streaming sites to promote their products and services. Under these new guidelines, there is no requirement for advertisers to submit their advertisements to the SC [but they must] comply with minimum standards that seek to promote responsible advertising and promotion."

What is an advertisement?

An 'advertisement' is in fact any dissemination of information, other than a disclosure document, that seeks to promote a capital market product or capital market-related service, through printed, electronic, digital or any other means. These include many staples of latter-day private bankers, including direct mail (by post or fax); product or service brochures and promotional fact sheets; telemarketing; audio messages for telephone callers on hold; presentations, seminars and advertorials; social media; and such Internet things as web-pages, banner advertisements, video streaming platforms (such as Facebook and LinkedIn) and micro-blogging platforms such as Twitter.

The application of the rules

Along with issuers and people who operate markets, the new set of rules applies to anyone who performs a regulated activity (for example, a financier who advertises things about the regulated activity that he carries out) and anyone or anything, such as a private bank or (the regulator's example) a trustee who advertises its services, who provides a capital market service that is specified by any primary or secondary legislation that emanates from the Capital Markets and Services Act 2007.

The guidelines apply to some advertisers (a wide category) on the date when they were issued, the 4th of this month. If, however, a company prepared an advertisement before that date and, for some reason, it came out shortly afterwards, the regulator is inclined to treat such an oversight with forebearance. The guidelines apply to other advertisers on 4 August, however, and the regulator is not going to tolerate any compliance later than this second date.

Advertisers can choose any medium which suits their needs and this includes using Twitter, LinkedIn, Instagram, Whatsapp, etc. If the private bank in question appoints an advertising agency to prepare an advertisement, that agency will not be answerable to the guidelines for its conduct; the bank will. The same goes for any marketing representatives (other than its RMs) that it wishes to appoint.

The rules are not to be relaxed in the case of HNW investors. The regulator has written: "All investors, including sophisticated investors, are entitled to the benefits resulting from responsible advertising and promotional activity."

The guidelines require firms to evolve written 'internal' (presumably this word means that their HNW clients need not know the details) policies and procedures to ensure that they comply. These policies and procedures should include, amongst other things: (a) an internal approval and reporting process; (b) criteria for assessing various things; and (c) recordkeeping.

Examples of non-compliance

One example of non-compliance with these guidelines is that of a stockbroking company that advertises itself as having the first algorithm-based digital platform in the Far East while, in actual fact, it has nothing of the kind, merely providing an online trading platform. This presents the investor with a false impression. Any management company or manco that attempts a little 'greenwashing' falls into this category.

A private bank that promotes an Exchange-Traded Fund or ETF to its clients, perhaps on Twitter, might break the new rules by sending them some literature that says: “Now is the best time to invest with the following ETFs as the economy is going south. It would be a good idea to invest now before it’s too late.” This, in the words of the regulator, would not comply "as it is using overzealous and flamboyant messaging which may attempt to exploit the vulnerability of investors, thus causing investors to not have due consideration to the risks involved in such investment."

Advertisers must ensure that their advertisements are fit for investors by considering the wider demographics of potential investors who would be viewing the advertisements, for example, the elderly or investors who are new to equity crowdfunding and likely not to be familiar with certain technical terms.

Let us imagine, for example, that a wealth manager does a little unit trust consultancy and converses with his client through Whatsapp and Telegram. He wants to promote ABC Growth Fund. Let us further imagine that the company that manages ABC Growth Fund recently posted an advertisement on its website which highlighted some updates to the fund, including warnings and conditions of the fund and that the wealth manager does not inform his HNW investor of the updated warnings and conditions because he assumes that he knows already. Since he has had a one-to-one relationship with that client, it is likely that the client has become reliant on him to inform him of any changes that occur with regards to the fund. Therefore, under such circumstances, the regulator is bound to decide that the wealth manager has not taken "such measures as may be reasonable." However, if he has asked the clients at the appropriate (early) stage to check the fund’s website, then it is 'likely,' to use the word of the regulator, that he is complying.

As long as a private bank does not deliberately misinform its clients about changes in the details of promoted products, the regulator is inclined to be tolerant.

"Whilst we expect advertisements to include current and accurate information, we are also cognizant that ensuring information contained in advertisements are continuously current and accurate can be burdensome. This expectation should therefore be balanced with the overall need to ensure that advertisements fairly represent the product or its key features and risks, or the nature and scope of the service. If the inaccuracy does not lead or result in an investor making poor investment decisions...the advertisers may exercise judgment."

The new guidelines supersede and replace the following.

  • Guidelines on Unit Trust Advertisements and Promotional Materials;
  • Paragraph 13.37C of the Guidelines on Private Retirement Schemes;
  • Paragraphs 4.01 to 4.07, Division 3, Part IV of the Prospectus Guidelines; and
  • Chapter 8 of the Guidelines on Compliance Function for Fund Management Companies.

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