Implementing Financial Capability/Investor Education ... Webinar 2.14 - Malaysia -FINAL.pdf · Islamic structured products Shariah compliant securities Islamic stapled securities

Implementing Financial Capability/Investor Education Programmes in the Context of Islamic Finance Principles:

The Malaysian Experience

IFIE WEBINAR 13th NOVEMBER 2013

Noraizat Shik Ahmad Product Evaluation

Islamic Capital Market 1

Khairul Ridzwan Abdul Kuddus Investor Affairs and Complaints

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Islamic Capital Market (ICM) Products & Services

Regulatory Framework for ICM

Investor Education

Comprehensive range of ICM products and services

Islamic unit

trusts

Islamic Exchange

Traded Fund

Islamic Real Estate Investment

Trusts

Sukuk Islamic

structured products

Shariah compliant securities

Islamic stapled

securities

Islamic fund management

Islamic Stockbroking

Commodity Trading

Platform

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Islamic Capital Market (ICM) Products & Services

Regulatory Framework for ICM

Investor Education

No requirements for separate regulation in developing ICM

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“The conventional securities regulation framework and principles equally apply to the ICM, with the addition of some form of a Shariah approval or certification process - no need to formulate separate regulatory principles for the for the Islamic capital market. By extension, IOSCO’s objectives and principles of securities regulation can be applied to the Islamic capital market”

How to promote the development of ICM while ensuring that the objectives and principles of securities regulation are achieved

Report of the ICM Task Force of the IOSCO (July 2004) – to assess the extent of the development from a regulatory perspective And potential regulatory issues relating to ICM

Regulation of ICM is part of the overall capital market regulations

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ICM business and transactions accord same level of investor protection as in conventional market, e.g. process of regulation, supervision and enforcement;

Common regulatory approach to regulating ICM products – same liability on the part of the intermediaries, e.g. due diligence and representation; and

Disclosure, transparency and governance apply equally to both conventional and Islamic products, hence same legal and regulatory protection.

A two-tier regulator framework

• Bonds/Sukuk – trust deed, mandatory rating, eligible person

• Unit trust/Islamic unit trust – management company, trustee, investment committee

• REITs/Islamic REITs – at least 50% investment in real estate

General Regulatory

Requirements

• Sukuk – Approved Shariah principles, Shariah adviser, utilisation of proceeds

• Islamic unit trust – Shariah adviser, investments, annual certification by the Shariah adviser

• Islamic REITs – tenants’ activities and rental income must comply with Shariah requirements

Shariah – specific requirements

Tier 1

Tier 2

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Applicable to both

conventional and Islamic

products

Applicable to Islamic products

Robust Shariah governance framework is fundamental for ICM

• SAC recognised as the central authority for the ascertainment of Shariah principles for Islamic finance

• Comprises prominent Shariah scholars, jurists and market practitioners

• Acts as a reference point for industry

• Publication of Resolutions of the SAC

National Shariah Advisory Council

at the SC

• Mandated by regulation

• To advise, review and endorse compliance of products/services with Shariah principles

• For Islamic capital market, must be registered with SC based on compliance with the Registration of Shariah Advisers Guidelines

• For Islamic banking, must adhere to the Shariah Governance framework issued by the central bank (Bank Negara Malaysia)

Shariah Advisers / Committee at the

Industry Level

Tier 1

Tier 2

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Islamic Capital Market (ICM) Products & Services

Regulatory Framework for ICM

Investor Education

SC Malaysia’s approach to Investor Education

Investor Education initiatives

Conventional

Islamic

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• SC’s Islamic investor education initiatives are done as part of our overall investor education initiatives

• In line with recommendations of IOSCO’s ICM Task Force in 2004

Investor Education approach to ICM products

Shariah Investment

Product

Basic Shariah compliance

Muslim investors seeking

permissible investments

All investors seeking “ethical”-type investments

Understanding of Shariah concepts

Shariah professionals,

scholars

Risk / return profile

All investors

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SC Malaysia’s Investor Education Strategy

Objective: To increase informed participation in the capital market

Schools

Rural/ Blue Collar/ Housewives

Universities/ Workplace/ Professional

Retail Investors (new and

active, existing)

Connectivity of education & conduct: •Product development & delivery •Effective and responsible product disclosure

and sales practices •Responsible post-sale care and disclosure

Financial literacy/capability Investment literacy and capability

Empowered Investor Responsible Industry

Through

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Delivery of IE Initiatives by SC (2008 – June 2013)

SC Reach

Exhibitions & roadshows

Talk/ Focus group

Nationwide Reach

Media

Interviews/

articles

Edumercials

Nationwide Reach

Development/

distribution

- collaterals

Website SC/Investor

Affairs Section

Potential/Current Investors

Channel

Mass Target Specific Programme

(i) IAC (Direct)

(ii) SIDC (SC’s training and development arm)

(iii) Strategic partners

Nationwide

Reach

How ICM fits into overall IE initiatives

• Participating in Halal exhibitions

• Malaysia International Halal Showcase (MIHAS)

• Halal Malaysia

• Outreach programmes and roadshows

Exhibitions and outreach programmes

• ICM is incorporated into financial capability programmes. Examples :

• Be Money Wise

• National Smart Investor Campaign

Seimnars for general public

• Making list of Shariah-compliant securities publicly available

• Islamic unit trust funds, Islamic ETFs, etc

Websites and publications

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Observations on ICM education

• List of Shariah-compliant stocks

• Types of Shariah-compliant collective investment schemes

“Education” on Shariah-compliant products through information

• Scammers take advantage of “Shariah compliant” label

• Product must not only be Shariah-compliant but legally compliant

Addressing scams

• 60.4% of Malaysian population are Muslim

• Muslims accept certification by national Shariah body, SAC

• Non-muslims persuaded by commercial considerations (if lower cost, higher returns) or ethical element

• Regulators ensure level of protection for conventional and Islamic is the same

Level of acceptance by investors

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IE for ICM products: Lessons Learnt

• Tenets of smart investing must be inculcated whether conventional or Islamic

• Regulators ensure parity of safeguards

Risk and return are key considerations

• National-level SAC instrumental in ensuring general acceptance of Shariah-compliant products

• Regular dissemination of list of Shariah-compliant products

• Important factor in encouraging financial participation in the (largely Muslim) rural heartland

Shariah certification

• Transparency to ensure acceptance

• Of interest mainly to scholars and professionals

Shariah concepts and methodologies

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Thank You

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