Securities Commission Malaysia issues Guidelines on Sophisticated Investors

08 February 2024

Background

Until 4 February 2024, the entities and individuals which are categorised as “sophisticated investors” for purposes of securities laws were set out in Part I of Schedules 6 and 7 of the Capital Markets and Services Act 2007 (“CMSA”).

On 5 February 2024, Schedules 5, 6 and 7 of the CMSA were amended by the Capital Markets and Services (Amendment of Schedules 5, 6 and 7) Order 2024 [P.U.(A) 41/2024] as follows:

by substituting Schedules 6 and 7 with new schedules that excluded the previous Part I thereof; and

by replacing the references in paragraphs 1(a), 14(a) and 27 of Schedule 5 and in the relevant provisions of Schedules 6 and 7 to sophisticated investors as “specified in Part I of Schedules 6 and 7” with sophisticated investors as “determined by the Commission in any guidelines issued under section 377” of the CMSA.

The Guidelines on Categories of Sophisticated Investors

On 5 February 2024, the Securities Commission Malaysia (“SC”) issued the Guidelines on Categories of Sophisticated Investors (“Guidelines”). The Guidelines took effect immediately upon its date of issuance. Henceforth, categories of “sophisticated investors” in securities laws will be determined by reference to the Guidelines.

In this article, we shall highlight the salient points of the Guidelines.

Purpose and applicability

The Guidelines set out the categories of sophisticated investors for purposes of securities laws and apply to any issuer of a capital market product¹ or a capital market intermediary² who wishes to make available, offer for subscription or purchase, or issue an invitation to subscribe or purchase, a capital market product to a sophisticated investor.

Categories

As in the case of the previous Part I of Schedules 6 and 7 of the CMSA, the Guidelines categorise “sophisticated investors” into three categories, namely Accredited Investor, High-Net Worth Entity (“HNWE”) and High-Net Worth Individual (“HNWI”).

Accredited Investor

Nine categories of Accredited Investors are listed in sub-paragraphs (i) to (ix) of Part (a) of paragraph 5.01 of the Guidelines. These are substantively identical to the categories of accredited investors in paragraphs 1 to 9 of the previous Part I of Schedules 6 and 7 of the CMSA.

HNWE

Sub-paragraphs (i) to (vi) of Part (b) of paragraph 5.01 of the Guidelines lists out six categories of HNWEs. These are substantively identical to the categories of accredited investors listed in paragraphs 10 to 15 of the previous Part I of Schedules 6 and 7 of the CMSA.

HNWI

Part (c) of paragraph 5.01 of the Guidelines sets out eight categories of HWNI in sub-paragraphs (i) to (viii) thereof. Only one category, that is an individual having a gross annual income exceeding RM300,000 or its equivalent in foreign currencies in the preceding 12 months is carried over from the previous Part I of Schedules 6 and 7 of the CMSA³.

Paragraph 16(a) of the previous Part I of Schedules 6 and 7 of the CMSA categorised an individual as a HNWI if his/ her total net personal assets or total net joint assets with his/ her spouse exceeds RM3.0 million or its equivalent in foreign currencies, excluding the value of the individual’s primary residence⁴. This category of HNWI has been amended and split into two categories under sub-paragraphs (i) and (ii) of Part (c) of paragraph 5.01 of the Guidelines, as follows:

sub-paragraph (i) of Part (c) of paragraph 5.01 now categorises an individual as a HNWI if his/ her total net personal assets exceeds RM3.0 million or its equivalent in foreign currencies, provided that the net value of primary residence⁵ of the individual contributes not more than RM1.0 million of the total net assets;

sub-paragraph (ii) of Part (c) of paragraph 5.01 now categorises an individual as a HNWI if his/ her total net joint assets with his/ her spouse or his or her child⁶ exceeds RM3.0 million or its equivalent in foreign currencies, provided that the net value of primary residence of the individual with his/ her spouse or child contributes not more than RM1.0 million of the total net assets.

Paragraph 16(c) of the previous Part I of Schedules 6 and 7 of the CMSA which categorised an individual as a HNWI if the individual jointly with his/ her spouse have a gross annual income exceeding RM400,000 or its equivalent in foreign currencies in the preceding 12 months. This requirement has now been liberalised under sub-paragraph (iv) of Part (c) of paragraph 5.01 which allows the income of the child to be included in determining whether the minimum amount of RM400,000 has been exceeded.

Paragraph 16(d) of the previous Part I of Schedules 6 and 7 of the CMSA which categorised an individual as a HNWI if the total net personal investment portfolio⁷ or total net joint investment portfolio⁸ with his/ her spouse, in any capital market product exceeds RM1.0 million or its equivalent in foreign currencies. This requirement has now been liberalised under sub-paragraph (v) of Part (c) of paragraph 5.01 which allows the net value of the investment portfolio of the child to be included in determining whether the minimum amount of RM1.0 million has been exceeded.

Three new categories of HNWIs have been introduced under Part (c) of paragraph 5.01 of the Guidelines:

sub-paragraph (vi) – an individual who holds any of the following qualifications and has five consecutive years of relevant working experience in finance, economics, actuarial science or accounting:

a Bachelor’s or Master’s degree related to Finance, Economics or Actuarial Science;
a Bachelor’s or Master’s degree in Accounting; or
a Master of Business Administration;

sub-paragraph (vii) – an individual who is a member of any of the following associations:

Active Member of Chartered Financial Analyst (CFA) Institute;
Chartered Banker of Asian Institute of Chartered Bankers (AICB);
Ordinary Member of Financial Markets Association Malaysia (FMAM);
Chartered Accountant, C.A(M) of Malaysian Institute of Accountants (MIA);
Ordinary Member of Malaysia Association of Tax Accountants (MATA);
Accredited Angel Investor of Malaysian Business Angel Network (MBAN);
Certified Member of Financial Planning Association of Malaysia (FPAM); or
Ordinary Member of Malaysian Financial Planning Council (MFPC).

sub-paragraph (vii) – an individual who has five consecutive years of working experience in a capital market intermediary relating to product development, corporate finance, deal advisory, investment management, sales and trading, investment research and advisory, financial analysis or the provision of training in investment products.

Paragraph 5.02 of the Guidelines require a sophisticated investor to self-declare and confirm that he satisfies the relevant criteria under paragraph 5.01 at the point of onboarding.

Comments

The transfer of powers to the SC to issue guidelines to determine the categories of “sophisticated investors” and the criteria to be satisfied in respect of each category thereof affords greater flexibility and speed than the previous procedure whereby changes are made through the issuance of subsidiary legislation by the Minister of Finance.

The categories of “sophisticated investors” set out in the Guidelines are substantially the same as those under the previous Part I of Schedules 6 and 7 of the CMSA, save for the introduction of three new categories of HNWI based on the academic qualification and work experience of an individual, and the expansion of several of the previous categories of HNWI to include assets, income and investments of a child and the net value (subject to threshold) of the primary residence. Nevertheless, these changes will significantly widen the pool of sophisticated investors and may boost investments in capital market products in the country.

The definitions and guidance notes included in the Guidelines assist in clarifying the scope of certain provisions in the Guidelines.

Article by Kok Chee Kheong (Partner) and Siti Ayenaa Binti Mohd Anis (Associate) of the Corporate Practice of Skrine.

¹ Section 2(1) of the CMSA defines “capital market products” as (a) securities; (b) derivatives; (c) a private retirement scheme; (d) a unit trust scheme; (e) any product or arrangement which is based on securities or derivatives, or any combination thereof; and (f) any other product which the Minister of Finance may prescribe as a capital market product.

² Chapter 4 of the Guidelines defines “capital market intermediary” as a Capital Market Services Licence holder, a registered person, or a person registered under section 76A of the CMSA to provide capital market services.

³ Refer to sub-paragraph (iii) of Part (c) of paragraph 5.01 of the Guidelines and paragraph 16(b) of the previous Part I of Schedules 6 and 7 of the CMSA.

⁴ Chapter 4 of the Guidelines defines “primary residence” as a house, a condominium unit, an apartment or a flat purchased or obtained solely to be used as a dwelling house and includes a service apartment and small office home office (SOHO) where the person lives in most of the time, either in Malaysia or overseas.

⁵ Chapter 4 of the Guidelines defines “net value of primary residence” as a value after deducting any outstanding amounts in respect of any credit facility that is secured against the primary residence from the estimated fair market value of the primary residence.

⁶ Chapter 4 of the Guidelines states that “child” includes a stepchild of an individual or the individual’s spouse, or a child adopted in accordance with any law by the individual or the individual’s spouse.

⁷ Chapter 4 of the Guidelines defines “total net personal investment portfolio” and “total net joint investment portfolio” as an individual’s total personal or total joint investments (with his /her spouse or child), in capital market products, less any borrowings or other liabilities related to such investments.

⁸ Refer to Endnote 7.

This 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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Securities Commission Malaysia issues Guidelines on Sophisticated Investors