The Securities Commission Malaysia (SC) has recently issued a Guidance Note on the Provision of Investment Advice[1]. Given the increasing number of self-proclaimed investment advisors, the Guidance Note clarifies situations in which a person must be licensed by the SC to provide investment advice.
Licence from the SC is Required
A person must be licensed by the SC to carry on a business of providing recommendations or opinions that are likely to induce another person to take any action or position regarding a particular class, sector, or instrument in relation to securities or derivatives.
The SC is likely to regard the activity of providing recommendations or opinions as carrying on a business if it is conducted in a structured and regular manner. Importantly, in today’s digital age, the SC makes no exception where such activities are carried out through the following means:
- Pay-for-advice arrangements;
- Offering a fee-based subscription to a channel or group (including on social media) that provides investment advice; or
- Expecting benefits or gratification, whether directly or indirectly, from providing such investment advice.
Under the Guidance Note, even if a person merely discusses specific stocks on blogs, forums, or other social media platforms, the SC is likely to consider that person as carrying on a business of providing investment advice if:
- His or her advice may induce readers or the audience to take action regarding a specific stock; and
- It is part of a pay-for-advice arrangement;
- It is a fee-based subscription; or
- He or she expects benefits or gratification, directly or indirectly, from doing so.
Licence from the SC is Not Required
According to the Guidance Note, conducting training sessions or seminars on stock trading would generally not require a licence from the SC, provided that:
- The training or seminar does not include any material or content; or
- None of the trainers or speakers make any statements
that amount to recommendations or inducements to take action or a position regarding a particular class, sector, or instrument in relation to securities or derivatives.
Nevertheless, the Guidance Note reminds unlicensed persons that the following acts amount to offences punishable by imprisonment of up to 10 years and a minimum fine of RM1 million:
- Engaging in any transaction that has, or is likely to have, the effect of raising, lowering, or maintaining the price of securities or derivatives for the purpose of inducing others to buy or sell them;
- Making false or misleading statements that are likely to induce another person to buy or sell securities or derivatives, or that are likely to affect their prices;
- Recklessly making any statement, promise, or forecast that is misleading, false, or deceptive to induce or attempt to induce another person to deal in securities or derivatives.
Obligations of Licensed Advisors
The Guidance Note also reminds licensed advisors that they must not make any false or misleading representations that are likely to induce a person to invest in securities or derivatives. This includes, for example, stating that an investment is capital guaranteed when it is not, or promising high returns with minimal risk.
Failure to comply with these standards may affect the licensed person’s fitness and propriety and result in regulatory sanctions being imposed against them.
Licensed advisors are further reminded that they owe both common law and contractual duties to their clients and must therefore exercise reasonable professional care when providing advice. Breach of these duties or contractual obligations may expose them to civil liability for negligence or breach of contract.
Useful Resources
For a list of unauthorised websites, investment products, companies, and individuals, visit:
🔗 SC Investor Alert List
To check whether a person is licensed or registered by the SC:
-
Public Register of Licence Holders: sc.com.my/licensed-registered-persons
-
List of Registered Recognised Market Operators: sc.com.my/rmo
This article is authored by:
Kang Mei Yee FCIArb
Partner
Gan Partnership
E: meiyee@ganlaw.my
Endnote
[1] Guidance Note on Provision of Investment Advice – Download PDF
DISCLAIMER: This article is for general information only and should not be relied upon as legal advice. The position stated herein is as at the date of publication on 20 January 2021. For any enquiries on this article, please contact our partner Kang Mei Yee (meiyee@ganlaw.my).
