Digital Agenda for the Capital Market in Malaysia
February 2023

Chin Wei Min

Malaysia’s fintech sector continues to thrive on the back of a facilitative
regulatory environment, enterprising entrepreneurs and a rapidly
growing digital population.
Payment (60)

Lending (55)Remittance (29)

AI/Data (9)Marketplace (13)PropTech (6)e-Wallet (43)Islamic FinTech (16)

Digital Bank (5)InsurTech (32)Blockchain/Cryptocurrency (21)

Crowdfunding (10)RegTech/KYC (14)WealthTech (25)

Source: Malaysia FinTech Report 2022 (FinTech News Malaysia)
2The SC had crafted a digital agenda for the capital market to achieve
four specific objectives for the market and the Malaysian economy
2. Increase Investor Participation

1. Enhance Access to Financing•Market-based Financing
i. ECF framework launched(2015) & 10 ECF operators
registeredii. P2P Financing framework
launched (2016) & 11
operators registerediii. PCF framework (2019) &IEO framework (2020)
launched
Secondary trading frameworkfor ECF and P2P introduced(2020)•Digital Agendafor MalaysianCapital Market

3. Augment InstitutionalMarket•••Markets for OTC
i. Bond / Sukuk Information
Exchange (BIX) launched(2017)
Advanced Analytics
adoptionInternationalisation ofProduct Offerings

4. Develop Synergistic Ecosystems•

Source: Securities Commission Malaysia• Digital Investment Services
i. Digital Investment Management(DIM) framework launched (2017)and 8 players licensed
ii. Digitising Customer Experienceand Traditional Distribution
Channelsiii. Rakuten Trade licensed (2017)
iv. eServices Platform (eSP)
framework launched (2020) and 2
operators registered• Digital Assets
i. DAX framework launched (2019)and 4 operators registered

Guidelines on Management ofCyber Risk issued (2016)
Project Castor DLT Architecture
Blueprint for Unlisted & OTC
Markets (2018)

Custodial / Trustee Services, Rating
Agencies, Guarantee Fund,
Government Agencies, VC&PE,
Industry Utilities
i. SC’s aFINity program (Regularengagements with government
agencies, incumbent players andtechno-preneuers)
ii. Brokerage Industry Digitisation
Group (BRIDGe) and FundManagement Digitisation Group(FMDG)• Digital Assets
i. Digital Asset Custodian (DAC)
framework launched (2020)3

Equity Crowdfunding (ECF) regulatory framework was introduced in2015• Locally incorporated privatecompanies and LLPs
permitted as issuers• Platform operator registeredas Registered Market
Operator (RMO)• Issuers are required to file astandardised disclosure
document with the ECF
platform operator providing
key information on the issuer,
the offering and the amount to
be raised• Not allowed to conduct
regulated activities unlesslicensed (CMSL)• Fundraising capped at RM20
million in total per issuer• 3rd party (Trustee) to remit/
handle monies

Issuer• Disapplication of generalsolicitation rule underCompanies Act 1965

Platform

All-or-Nothing approach
Tiering of investors class:• RM5k for retail investors for asingle investment and, nomore than RM50k within 12months• Up to RM500k for Angelinvestors within 12 months• Unlimited amount forsophisticated investors

Investor

Source: Securities Commission Malaysia
4

… followed by the Peer-to-Peer (P2P) Financing regulatory framework
in 2016

Issuers

P2P operator• Only for local businesses(No personal loan allowed)• Platform operator registered as RMO• Rate of financing not morethan 18% per annum*• Conduct background check and risk scoring• No concurrent hosting on
multiple P2P platforms forsame purposes• No cap in funding sought• Must raise at least 80% of
the target amount• Oversubscription not allowed• All info disclosed to operator
must be true and accurate• Minimum RM5 million paid-up capital• Trust accounts for funds raised and repayments toinvestors• Appoint Shariah Advisor (when applicable)

Investors• No investment limit forsophisticated and angel
investors• Retail investors are highly
encouraged to limit P2P
investment exposure atRM50,000 at any one time

• Must disclose on platform:
 Info relating to the issuers
 Info on risk scoring mechanism, methodology andparameters adopted by the P2P operator
 Default criteria, default management, statistics on latepayment / default rate of issuers info on processes / arrangement in the event the P2P
operator is unable to continue its operations

Source: Securities Commission Malaysia
5

In 2017, the Digital Investment Management framework was released asa new category of portfolio mgmt to support robo-advisory activities
Digital Investment Management is a fund management business incorporating innovativetechnologies into automated discretionary portfolio management services offered to client
Key Fund Management Activities
Understand Client
Needs

Propose Solution

Implement Solutions

 Gather clientinformation

 Select asset
allocation

 Persuade to action

 Understand needs& preference Select securities
forming investment
portfolio

 Transfer funds

 Assess risktolerance

 Generate
proposals Open accounts
 Execute & manage
portfolio

Monitor Results &Adjust Strategy
 Periodic
performance
review
 Dashboards,
status-alerts
 Rebalancing ofportfolioSource: Securities Commission Malaysia
6

The SC had in 2019 and 2020 implemented frameworks for DAXes,
IEO fundraising platforms and DACs to regulate the DA ecosystem
Overview of regulatory framework for Digital Assets (DA)Markets

ProductsActivities

 Any person who provides aplatform for buying andselling of Digital Assets may
be operating a market –including ATMs

 The listing of new digitalassets to be traded on
DAXes is subject to SC
approval. Currently there are
5 assets permitted for trade Any person providing
services relating to Digital
Assets will also be regulated Must be registered as a
Digital Asset Exchange
Operator (DAX) with the SC

 Offering of digital assets tothe public for fundraising is
also a regulated activity

 SC had registered 4 DAX
operators, with all 4 now live Such an offering can only bedone via a SC-registered IEO
platform, which will be
responsible for due diligenceand AMLA

Source: Securities Commission Malaysia

 This now includes Digital
Asset Custodians (DAC)
which intend to provide
custody for 3rd parties Key requirements include
AMLA, client asset protection
and cyber security
protections

 Minimum disclosure
requirements for whitepaper,
as well as fundraising limits
will be imposed7

In addition to introducing new digital business models, the SC has
been working towards digitalizing traditional capital market sectors

2016 and before

2017 - 2018

2019

2017
 Establishment of License granted to License granted to
FMDG to accelerate
iFast, the first
Rakuten Trade, thedigitization of theonline fundfirst fully digitalfund management
supermarket instockbroker inindustry, focused on
Malaysia
Malaysia
2 key areas:
2018
 Implementation ofi. Onboarding
outsourcing Establishment ofii. Post-trade
guidelines toBRIDGe to accelerateenable adoption ofdigitization of the From BRIDGe,cloud services
stockbroking
implementation ofindustryfocusedon3
keysolution for online
 Implementation ofareas:settlement of large
non-face-to-facevalue trades
KYC process toi. Fully digital
beyond the current
allow onboarding of
onboarding
usual internet
clients online
ii. Clearing & settlementbanking limit
 Issuance ofiii. Corporate actions
Guidelines on Issuance of ProjectManagement ofCastor report, a DLTCyber Risk which
Architecture Blueprint forsets minimum cyber
the Unlisted Market
security standards
for all intermediaries  Begin annual industrywide cyber drill
exercise

2020

2021 to date

 From BRIDGE, begin  Announcement ofimplementation ofECF liberalization:
solution for ei. Increase ECF
Corporate Actions,fundraising limit
including:from RM10M toi. e-GMs (generalRM20M
meetings)
ii. Expand permitted
ii. e-Rights
ECF issuers toinclude unlisted
iii. e-GO (generalpublic companyoffer) Launch of framework  Launch of FIKRA
Islamic Fintech
for e-Services
Accelerator
platforms, which will
Programme withallow new digitalUNCDF
portals, e.g. e-wallets,
e-commerce Launch of Capital
platforms, to distributeMarket Masterplan 3
capital market('CMP3')
products
 Impending Guidelines to regulateannouncement ofIEO and DAC wereregistered IEO
issued.
operators
Source: Securities Commission Malaysia

8Since inception, various capital market FinTech providers haveachieved good early success in their respective areas
Alternative Financing through ECF & P2P Financing

21>6k
1.7M
169k

Registered
ECF and P2P
operators

MSMEs
successfullyraised funds>48k>3.9B

ECF Average
Fundraise(RM42k – 18.9M)

P2P Average
Fundraise (RM)
(Unsecured)(RM38.6 – 17.2M)

Data as at 30 Sep 2022

55%
63k

Successful
campaigns acrossECF and P2P

Total funds raised
thus far across ECF
and P2P (RM)

ECF Issuers
are techbusinesses

P2P Average
Fundraise (RM)
(Invoice)(RM9 – 5.6M)

Source: Securities Commission Malaysia

Digital Investment Management

8

Licensed Digital
Investment
Managers>1.3B

Assets underManagement(AUM) (RM)

>657k

Accounts
openedData as at 30 Sep 2022

Digital Asset Exchanges4Registered DAXoperators>2.9B Volume traded
Data as at 31 Dec 2022
9Since inception, ECF and P2P financing have fundraised more thanRM3.9 B benefitting 6,252 MSMEs
ECF and P2P markets as of 30 September 2022

3.9B

6,252

48,442

total funds raised
ECF: 532.6M P2P: 3.4B

total MSMEs
ECF: 293 P2P: 5,959

successful campaigns
ECF: 315 P2P: 48,127(2021: 2.7B)(2021: 4,556)(2021: 30,599 )Increased participation from investors>43k(2021: >38k)
investors

79%

of participating individualinvestors are retailers
ECF: 59% P2P: 87%54%

investors are below 35 y.o
ECF: 44% P2P: 58%

Source: Securities Commission Malaysia
10After a phenomenal run in 2020-2021, ECF market witnessed someslowdown in 2022 YTD, with total funding raised decreased by 49%
from 2021
27.5

30.0
25.0
20.0

8

18.5

15.0

9.5

10.0

6.2

5.0
0.0

10JanFebMarApr

9.7

12.3

11.6

6
9.9

7.5

42MayJunJulAug

Sep0Month

No. of campaigns

Amount Raised (RM ‘mil)

ECF Market as of September 2022Amount Raised(RM)
No. ofcampaigns

Key Highlights (as of 30 September 2022)

52

MSMEs
successfullyraised via ECF(2021: 104, -50%)

Source: Securities Commission Malaysia

RM112.6M

total amountraised (RM),(2021: RM221.6M,-49%)

RM1.7Maverage fundraisi
ng amount(2021: RM2.1M)

RM6.5kaverageinvestment
amount of retailinvestors(2021: RM8.2k)

11

P2P financing market has seen a slight decline in 2022 YTD, with total
funding raised decreased by 2% from 2021

200150

122.8

120.1
92.2

100

145.5
106.6132.5

155.5

152.9

91.2

500JanFebMar

AprMayJunJulAugSep

1600
1400
1200
1000
800
600
400
2000

No. of campaigns

Amount Raised (RM ‘mil)

P2P Market as of September 2022

Amount Raised(RM)
No. of campaigns

Month

Key Highlights (as of 30 September 2022)

2,674

MSMEs
successfullyraised via P2P(2021: 1,988+34.5%)

1.12B

total amountraised(2021: RM 1.14B,-1.8%)

73.5%

of notes issued areshort-term (tenureof <= 3 moths);
RM63k is avg
amount raised forshort-term notes

RM560.6M
total investment
amount byindividual
investors(2021: RM535M)

Source: Securities Commission Malaysia
12

Risk and challenges of our FinTech industry

Cybersecurity andprivacy
protection•••
AML andcross-bordertransactions

Investor
education••

As Fintech businesses are largely online, cyber security and morecritically data privacy and confidentiality are of utmost importance.
There is marked increase in cyber threat and incidents, resulting indata breach and consequential loss of business and reputation
damages.
Convenience and fast transactions have been the main features of thenew FinTech capabilities, especially in addressing specific industry
issues eg cross-border transactions
It is paramount that FinTech players adhere to the AML-CTFregulations. In specific instance, this applies not just to fiat money
flow, but also underlying instrument (eg DA)

Investors need better education and constant reminders on thefundamental correlation between investment risk and returns so thatthey are not blinded by the appeal and shine of new technologies.
13

Food for further thoughts…
 How to regulate non traditional entrants like the big-techs
which are venturing into the regulated FinTech domain? Do weregulate the whole entity or only parts?
 Who is accountable, should there be issues with regards to AI
robo-advisors? (“Man vs Machine”)
 What if there is no specific legal entity directly tied to theFinTech entity (e.g. DAO)?
 Should there be a major incident which may systematically
impact the ecosystem, do we terminate the one entity or ‘nuke’
the entire sector?
 How do regulators keep pace with emerging technology?
14