Guidelines on Compliance Function for Fund Management Companies revised to facilitate investments in Private Debt Notes and Islamic Private Debt Notes

20 April 2026

The Securities Commission Malaysia (“SC”) issued the following on 30 March 2026:

the 17^th revision of the Guidelines on Unlisted Capital Market Products Under the Lodge and Launch Framework (“LOLA Guidelines”); and
the 13^th revision of the Guidelines on Compliance Function for Fund Management Companies (“Fund Management Guidelines”).

Both sets of Guidelines came into effect immediately on their date of issuance, i.e. 30 March 2026.

The principal amendments to the LOLA Guidelines are to facilitate the issuance of private debt notes and Islamic private debt notes by private companies. The revised LOLA Guidelines also expanded the categories of eligible investors for the aforesaid instruments to include certain private equity and venture capital funds, wholesale funds and fund management companies pursuant to investment mandates agreed with sophisticated investors.

Our article on the main amendments to the LOLA Guidelines can be read here.

This article highlights the main amendments made under the 13^th revision of the Fund Management Guidelines.

Principal purpose

As mentioned above, the primary purpose of the amendments to the Fund Management Guidelines is to facilitate the investment in private debt notes and Islamic private debt notes by licensed fund management companies.

New definition

Paragraph 2.01 of the Fund Management Guidelines has been amended to introduce the following new definition:

“private debt notes and Islamic private debt notes” means an instrument as described in Section B, Part 5 of the Guidelines on Unlisted Capital Market Products Under the Lodge and Launch Framework.”

It is to be noted that paragraph 1.01 of Section B, Part 5 of the LOLA Guidelines expressly provides that the private debt notes and Islamic private debt notes are to be issued or offered by private companies.

Investment in private debt notes and Islamic private debt notes

A new paragraph 9.07A of the Fund Management Guidelines requires a fund management company that invests in private debt notes or Islamic private debt notes through a wholesale fund or as part of an investment mandate agreed with sophisticated investors to establish and maintain risk management policies and procedures in a standalone document.

A new Guidance has been introduced to paragraph 9.07A, a summary of which is as follows:

the fund management company’s risk management policies and procedures should enable it to effectively monitor, measure and manage the risks associated with investments in private debt notes or Islamic private debt notes;
in preparing the risk management policy and procedures, the fund management company may be guided by, among others, the following:

overview of deal sourcing and investment structuring practices and risk mitigation techniques;
credit evaluation process;
description of the approval process in assessing borrower’s credit worthiness;
description of the valuation and pricing methodology used to assess private credit instruments;
approach to assessing impairment risk;
intervention process to preserve investor capital or trigger equity conversion;
ongoing covenant monitoring, repayment tracking, and stress detection as well as processes for enhanced monitoring, restructuring discussions, or recovery action;
proof of the issuer’s lodgement with the SC under Section B, Part 5, of the LOLA Guidelines in respect of private debt notes or Islamic private debt notes, and compliance with applicable terms; and
maintenance of records of assessment of key personnel and committees responsible for credit evaluation, approval, oversight as well as the governance safeguards to ensure their independence and objectivity.

The above-mentioned requirements are non-exhaustive and the SC may request additional information where it deems necessary.

A new paragraph 9.07B requires a fund management company to inform the SC of its intention to invest in private debt notes and Islamic private debt notes before it lodges the wholesale fund or enters into the investment management agreement.

Comments

The amendments to the Fund Management Guidelines facilitate fund management companies to invest in private debt notes and Islamic private debt notes. The amendments also seek to safeguard the interests of individuals and entities who invest in wholesale funds or enter into investment management agreements with the fund management company relating to investments in private debt notes and Islamic private debt notes by requiring the fund management company to establish and maintain appropriate risk management policies and procedures to monitor, measure and manage the risks associated with investing in such instruments.

Article by Phua Pao Yii (Partner) and Tan Wei Liang (Partner) of the Corporate Practice of Skrine.

This article/alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

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Guidelines on Compliance Function for Fund Management Companies revised to facilitate investments in Private Debt Notes and Islamic Private Debt Notes