Bank Negara issues Exposure Draft of Code of Conduct for Malaysia Wholesale Financial Markets
17 November 2021
Bank Negara Malaysia (‘BNM
’) issued an exposure draft of the Policy Document on the Code of Conduct for Malaysia Wholesale Financial Markets
’) on 9 November 2021.
The Exposure Draft is not a new policy document but is an update of the Policy Document on the Code of Conduct for Malaysia Wholesale Financial Markets
issued on 22 April 2020 (‘Existing Policy Document
’). The Existing Policy Document will be replaced by the Exposure Draft when the latter takes effect.
As in the case of the Existing Policy Document, the Exposure Draft applies to market participants who deal in the wholesale financial markets either as a sell-side or buy-side entity, and may include:
- Licensed banks
- Licensed investment banks
- Licensed Islamic banks
- Prescribed development financial institutions
- Licensed insurers
- Licensed takaful operators
- Approved money-brokers
- Approved operators of electronic trading or broking platforms
- Investment institutions
The expression ‘corporations’ refers to body corporates formed in Malaysia (resident) or outside Malaysia (non-resident), which deal in the wholesale financial markets including non-resident banks and other development financial institutions that are not prescribed under the Development Financial Institutions Act 2002, and ‘investment institutions’ refers to resident or non-resident institutions who deal in the wholesale financial markets such as fund management companies, sovereign wealth funds and pension funds.
Transactions in the wholesale financial markets generally refer to transactions between institutions and do not involve retail transactions (e.g. transactions with an individual customer).
The Exposure Draft reiterates the objectives of the Existing Policy Document, which is to set out:
- the eligibility requirements for dealers and brokers;
- market conduct and internal control requirements to safeguard professionalism and integrity of the wholesale financial markets; and
- the role of industry associations in preserving market integrity.
As in the case of the Existing Policy Document, the Exposure Draft is divided into nine parts, namely:
Part A : Overview
Part B : Dealers and Brokers
Part C : Prohibited Conduct
Part D : Responsibility to Preserve a Reputable, Ethical and Honest Market Place
Part E : Sharing of Information and Transparent Communication
Part F : Traceability, Auditing and Record Keeping
Part G : Robust and Clear Policies, Procedure and Organisational Structure
Part H : Internal Governance and Control
Part I : Use of Technology.
The Policy Document applies to the market participants in the following manner:
||The whole Policy Document
|Licensed investment banks
|Licensed Islamic banks
|Prescribed development financial institutions
|Licensed takaful operators
|Approved operators of electronic trading or broking platforms
||Parts C, E, F and I
|Other market participants who deal in the wholesale financial markets, in particular corporations and investment institutions
||Parts C, D and E
The main amendments proposed in the Exposure Draft are as follows:
- A new paragraph 8.3 of the Exposure Draft requires financial institutions to have in place policies and controls on permissible activities for licensed and non-licensed personnel in the dealing room.
- Paragraphs 8.3 and 8.4 of the Existing Policy Document will be deleted.
- Paragraph 10.2 of the Existing Policy Document will be amended to impose a requirement on an operator of electronic trading or broking platform used in the Malaysian wholesale financial markets to be duly approved by BNM under the Policy Document on the Framework for Electronic Trading Platforms.
- New paragraphs 11.1 and 11.2 of the Exposure Draft propose that mandatory leave on dealers and brokers be introduced.
- A new paragraph 16.2 of the Exposure Draft specifically requires market participants (other than a licensed onshore bank (‘LOB’) and an approved development financial institution (‘Approved DFIA’)) to carry out money market or foreign exchange transactions with an LOB or an Approved DFIA.
- A new paragraph 16.3 of the Exposure Draft states that only LOBs may engage in market-making activities for foreign exchange transactions, while other market participants can only leave orders or be price takers.
- Paragraphs 19.1 and 19.2 of the Existing Policy Document which prohibit ‘position parking’ will be deleted. Position parking will henceforth be a misconduct under paragraph 25.2 of the Exposure Draft.
- The scope of personal account dealings under paragraph 22.1 of the Existing Policy Document will be significantly expanded under paragraph 21.1 of the Exposure Draft. Under the Exposure Draft, personal account dealing will include not only any activity in which a dealer deals under his own name, but also by proxy, where a dealer receives indirect benefits, has influence and/or control over such accounts (e.g. for close relatives, and/or other connected parties).
- New paragraphs 25.1 and 25.2 will be introduced under the Exposure Draft to address misconduct.
- The requirement for management to establish internal policies relating to retention of communications records under paragraph 28.2 of the Existing Policy Document has been clarified in the corresponding paragraph of the Exposure Draft.
- New paragraphs 28.3 and 28.4 will be introduced under the Exposure Draft to impose a requirement on management to subject all approved methods of communications to surveillance by an independent party (which can be a separate department, unit, individual or external party, separate from the dealers and brokers).
- New paragraphs 34.1 to 34.3 will be introduced under the Exposure Draft to set out the responsibilities of the Board and management in relation to specified aspects of an institution’s wholesale market business.
- The requirement under paragraph 35.4 of the Existing Policy Document relating to the maintenance of a record of the internal assessments, non-compliance findings and corrective measures taken in relation to employees will be aligned with the provisions in BNM’s Policy Document on Employee Screening under paragraph 36.4 of the Exposure Draft.
- Paragraph 39.2 of the Existing Policy Document ‘encourages’ the management of an institution to establish systems and procedures that detect trends indicative of insider dealing and market manipulation or the attempts at such conduct. This requirement will be significantly strengthened under paragraph 40.1 of the Exposure Draft to impose a mandatory requirement to establish policies and mechanisms to detect trends indicative of prohibited conduct and other misconducts, or attempts at such conducts.
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 email@example.com.
Feedback on the Exposure Draft are to be submitted electronically and addressed to firstname.lastname@example.org
by 6 December 2021
Alert by Kok Chee Kheong (Partner) of the Corporate Practice of Skrine.