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Changes in how financial services are conducted will bring about new scopes in the supervision of market conduct to ensure the fair treatment of investors, with emphasis on investor vulnerabilities. For example, there will be a need to focus on the conduct of advisors as the landscape for investment advice evolves into differentiated models. Similarly in the development of SRI, there will be a need to focus on greenwashing risks, while in the growth of alternative marketplaces, there will be a need to expand the scope of market surveillance. In addition, there is a need to strengthen the SC’s supervisory coverage across the intermediaries within the capital market, including FPs, investment advisors, corporate advisors and rating or pricing agencies.
In this regard, an approach which adopts proactive measures can better serve investors and market participants, while optimising the use of the SC’s resources. Section 4.1.4 elaborates on the SC’s plans to enhance its supervisory focus on the culture and conduct of capital market participants as regulations become more principles-based. This is premised on the belief that the culture of an entity shapes how it is governed and behaves, and that poor culture and values are often the root cause of an entity’s failure to meet regulatory standards. Greater supervisory focus on culture and conduct would allow for more proactive management of culture, behaviour and conduct risk within the capital market. In line with this, the SC will outline expectations of governance standards for capital market participants and do more to communicate the findings of thematic or supervisory reviews to provide greater clarity of the SC’s expectations.
In tandem, the SC will continue to pursue regular and proactive ‘regulator-regulatee’ engagements. Today, these engagements are conducted through various forums and platforms, covering areas related to innovation and topics that inform the SC’s development and regulatory policies. Moving forward, engagements with market participants will also serve to strengthen alignment on standards and expectations of principles-based regulations as well as to ensure that communication channels remain open, as market participants evolve with greater self-regulation.
The AOB, which supervises auditors in Malaysia, will also enhance its supervisory effectiveness as expectations on auditors as well as audit quality increase and as auditors themselves increasingly adopt new technology when undertaking their work. For larger audit firms, the introduction of the Annual Transparency Reporting for identified audit firms in 2021 will promote greater transparency and accountability for audit quality. For smaller audit firms, the AOB intends to conduct greater engagements to raise the bar on audit quality.
There is also a need to expand the use of data and technology to enhance supervisory efficiency. This will enable more coverage, in particular over the conduct of the growing number of intermediaries and institutions, to safeguard investors without the need to scale up human resources extensively. Today, the SC adopts advanced analytics in the surveillance of markets and in the monitoring of CG adoption and disclosures. Insights derived from the use of analytics have not only brought about greater internal efficiencies but also enabled evidence-based regulatory measures and more efficient policymaking. Similarly, the AOB has initiated efforts on using data and analytics to better assess the risk profile of audit firms and PLCs to augment its supervisory focus. Globally, regulators have started using advanced data gathering and analytics to improve the monitoring of key risk indicators, enhance supervision of market conduct as well as provide better visibility of intermediary behaviours and practices. This entails greater efforts by regulators to automate data collection and develop analytics capabilities. The SC’s priorities on this front will be further discussed in section 4.3.3.
98 SECURITIES COMMISSION MALAYSIA