Scope of application
The Exposure Drafts apply to approved financial advisers under the Financial Services Act 2013 (‘
FSA’) and approved Islamic financial advisers under the Islamic Financial Services Act 2013 (‘
IFSA’). In addition, Exposure Draft No. 2 also applies to persons intending to become approved financial advisers or approved Islamic financial advisers.
An approved financial adviser under the FSA is a person approved under the FSA to carry on financial advisory business, that is, any of the following businesses: (a) analysing the financial planning needs of a person relating to an insurance product; (b) recommending an appropriate insurance product to a person; (c) sourcing an insurance product from a licensed insurer for a person; (d) arranging of a contract in respect of an insurance product for a person; or (e) such other financial service as prescribed by the Minister of Finance.
An approved Islamic financial adviser under the IFSA is a person approved under the IFSA to carry on Islamic financial advisory business, that is, any of the following businesses: (a) analysing the financial planning needs of a person relating to a takaful product; (b) recommending an appropriate takaful product to a person; (c) sourcing a takaful product from a licensed takaful operator for a person; (d) arranging of a contract in respect of a takaful product for a person; or (e) such other financial service as prescribed by the Minister of Finance.
For the purposes of the Exposure Drafts, the expression “approved financial adviser” collectively refers to an approved financial adviser under the FSA and an approved Islamic financial adviser under the IFSA, unless otherwise specified (‘
approved financial adviser’).
Exposure Draft No. 1
The following are some of the main requirements under Exposure Draft No. 1.
Form of establishment
An approved financial adviser must be a company incorporated under the Companies Act 2016.
Business conduct requirements
In carrying on its financial advisory business or Islamic financial advisory business, an approved financial adviser is required to provide suitable product options to meet its customers’ needs from at least three different licensed insurers or licensed takaful operators for each class of insurance or takaful business.
An approved financial adviser is required to notify its customer if there is no suitable and affordable
insurance or takaful product that meets the customer’s needs. It is prohibited from recommending the purchase of any other insurance or takaful product for the sole purpose of securing a sale.
Professional indemnity requirement
An approved financial adviser must at all times maintain a professional indemnity insurance or takaful cover with a minimum indemnity limit of at least RM200,000 net of deductibles for any one claim. In addition, the board of directors (‘
board’) of an approved financial adviser must ensure that the amount and scope of the professional indemnity insurance or takaful cover is commensurate with the volume and nature of business of the approved financial adviser at all times.
Capital funds requirement
An approved financial adviser is required to have minimum capital funds of RM50,000 which is to comprise of the sum total of (a) paid up ordinary shares; (b) reserves; (c) retained profits or accumulated losses; and (d) audited profits for the period, or audited and unaudited losses for the
Period,
excluding loans, advances and investments given to shareholders, directors or other related parties.
Other permitted business activities
An approved financial adviser is also allowed to carry on any regulated activities under Part 1 of Schedule 2
1 of the Capital Markets and Services Act 2007, subject to it being duly licensed to do so. In addition, it is permitted to analyse, recommend, source or arrange a contract in respect of banking or Islamic banking products and services.
Directors and chief executive officer
An approved financial adviser must appoint a minimum of two directors to its board, one of whom must be its financial adviser’s representative (‘
FAR’). Each director must be assessed by the approved financial adviser to have complied with BNM’s Policy Document on Fit and Proper Criteria for Approved Person.
In addition, it is required to appoint a full-time chief executive officer who, unless otherwise approved by BNM, resides in Malaysia.
The board
The board is to have a board charter that sets out the board’s mandate, responsibilities and procedures, including the matters that are reserved for the board’s decision.
The board is to have overall responsibility for promoting the sustainable growth and financial soundness of the approved financial adviser and for ensuring reasonable standards of fair dealing.
To discharge its role, the board must, among other responsibilities: