Malaysia’s Capital Market Resilient For 2022 Moving Towards Greater Efficiencies, Diversification This Year, Says SC Chairman

Malaysia’s Capital Market Remains Resilient For 2022 Moving Towards Greater Efficiencies, Diversification This Year, Says SC Chairman

The Securities Commission Malaysia (SC) is pleased to announce the release of its Annual Report 2022 (AR 2022), the Audit Oversight Board Annual Report 2022 (AOB Report 2022), and the inaugural Capital Market Stability Review 2022 (CMSR 2022).

The SC Chairman, Dato’ Seri Dr. Awang Adek Hussin, said the Malaysian capital market remained orderly and continued to finance the economy, with total funds raised hitting a record high of RM179.4 billion. This exceeded the 5-year pre-pandemic average of RM121.4 billion.

The 2022 performance, led by a record amount of corporate bond and sukuk issuances, was achieved despite increased global market volatility and headwinds. Globally, the capital market registered weaker performance in 2022 with the continued tightening of financial conditions in major markets, inflationary pressures, and the repercussions of the Ukraine war.

Dato’ Seri Dr. Awang Adek said the continued resiliency of the Malaysian capital market highlighted the value of exercising prudence and shared accountability while capitalising on growth prospects that arise.

“This approach allows the market to better manage risks, preserves overall financial resilience and stability, and supports economic growth,” he said.

Awang Adek added that with stronger political stability and strong govt policies the impact of the eternal headwinds are now lessening. And, this is coupled with a higher confidence shown by foreign investors which places the nation as a favourable investment focal point.

“Overall, with the positive sentiment and with the standardising of many policies presently, the uncertainties will gradually be reduced and we expect the second half of 2023 to be better, hopefully.”

SC’s Annual Report 2022 (AR 2022) highlights the SC’s efforts in promoting market integrity, investor protection, and the development of the Malaysian capital market. This ensured the capital market’s role in financing sustainable development, while facilitating continued innovation to address emerging risks and challenges.

Among the key highlights outlined in AR 2022 are:

  • Equity crowdfunding (ECF) and peer-to-peer financing (P2P) platforms continue to facilitate the funding needs of micro, small and medium enterprises (MSMEs), with the total funds raised recording an increase of 26% from RM1.4 billion in 2021 to RM1.7 billion in 2022. Since their inception, ECF and P2P have helped 7,218 MSMEs raise over RM4.4 billion.
  • The Islamic capital market (ICM) comprising total sukuk outstanding and Shariahcompliant equity market capitalisation, saw a marginal increase by 0.6% compared to the previous year. The ICM has increased at a compound annual growth rate (CAGR) of 4.2%, driven by the increase in total sukuk outstanding (9.3% p.a) while Shariah-compliant equities remained relative flat (0.1% p.a.). Ongoing efforts to broaden and deepen the ICM were made, including the issuance of the Guidelines on Islamic Capital Market Products and Services to facilitate efficient access to the ICM ecosystem.

– The capital market continues to prioritise good corporate governance and sustainability practices. As of 1 March 2023, 30% of the top 100 public listed companies (PLCs) are led by women, and all top 100 PLCs have at least one-woman director on the board.

– To address scams and unlicensed activities, the SC had established an internal task force. The establishment of an internal task force is a proactive measure to ensure that such activities are identified and dealt with in a timely manner. In 2022, 185 websites were blocked and 304 new entries were added to the SC’s Investor Alert List, compared to 143 websites and 134 new entries in 2021.

– In 2022, the SC took criminal and civil actions related to various serious breaches such as disclosure breaches, securities fraud and unlicensed activities which resulted amongst others, numerous criminal convictions and RM12.9 million in total fines.

Audit Oversight Board Annual Report 2022

During the year, the AOB inspected 56 audit engagements carried out by 52 individual auditors from 21 Audit Firms. On an annual basis, the AOB inspects the Major Audit Firms which collectively audit PLCs that represent 73.5% of the total number of PLCs and 95.3% of the total market capitalisations of PLCs in Malaysia. In 2022, the AOB also conducted targeted inspections aimed at responding to emerging risks in a timely manner.

The AOB continues with its supervisory rigour by leveraging data analytics to identify key risks and specific areas of concern in the market. The number of audit firms inspected during the year increased by 50%.

The past year saw the need to strengthen the oversight role of Audit Committees (ACs), the AOB engaged with 973 ACs from 773 PLCs through its ‘Conversation with Audit Committees’ session. The AOB strongly believes effective oversight by strong, knowledgeable, and independent ACs of PLCs can enhance audit quality.

In 2022, the AOB engaged with 84 senior partners of AOB-registered audit firms to understand the challenges faced by the profession and ensure that timely regulatory measures are put in place to improve audit quality.

The AOB worked on strengthening the audit profession’s capabilities, the AOB and the Malaysian Institute of Certified Public Accountants (MICPA) held workshops to assist audit firms with the implementation of the International Standards on Quality Management, which became effective on 15 December 2022. These workshops provided practical examples of how audit firms should design their quality management systems based on the nature and circumstances of the firm and the engagements they perform.

During the year, the AOB took six enforcement actions against auditors for breaching the relevant auditing and ethical standards. The actions included prohibitions and monetary penalties totaling RM383,500.

The AOB’s enforcement actions are subjected to Judicial Reviews by the auditors and the AOB has managed to successfully defend its actions in the Courts thus far. During the year, the Federal Court unanimously ruled in favour of the SC and the AOB in respect of a Judicial Review initiated by aggrieved auditors. The decision further reinforces the robustness of the AOB’s enforcement framework.

Capital Market Stability Review 2022

The CMSR, which outlines overall risk assessments on various components of the Malaysian capital market, revealed that, while the domestic market continued to be affected by the confluence of global and local factors, it was able to operate in a fair and orderly manner, with no systemic stability concerns observed.

Key observations from the report include domestic equity market was impacted by global volatility which affected market sentiment amid healthy local retail and foreign investor participation.

The Liquidity in equities continued to be supported by both local and foreign investors. It was also found that the corporate bond default rate remained low and fund managers had in place robust liquidity risk management processes to ensure sufficient liquidity to manage potential increase in redemption.

It was found that for PLCs, most sectors recorded higher earnings in 2022 and in the digital asset space, average trading value has declined and domestic digital assets remain small compared to the equity market.

Moving Forward

Awang Adek said some of the areas of focus in 2023 include regulatory reforms, enhancing the fundraising ecosystem, advancement of the ESG agenda, facilitation of technology adoption and improving of corporate governance.

The SC will also prioritise sustainability and talent development to ensure the capital market continues to contribute to broader social and environmental goals.

“As we look towards the future, the SC remains committed to pursuing initiatives that will further strengthen Malaysia’s capital market, and enhance its role as a catalyst for economic growth and development,” he said.

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