Governance and Audit Oversight for Capital Market Nik Mohd Hasyudeen Yusoff October 2018

Agenda Regulatory ecosystem and institutional arrangements Market and corporate supervision Audit oversight Key ingredients for effective supervision Summary of thoughts

Possible institutional arrangements in capital market Clear institutional arrangements, roles and expectations are important Collaboration is key Primary regulator Regulatory-discipline Stock exchange Other regulators Market-discipline Other relevant laws Domestic or cross border Public listed companies Self-discipline

Possible supervision arrangements Insider trading Trading of shares and other securities Market Supervision team Market abuse Investigation team Public listed company Prosecution team Corporate transactions Corporate Supervision team Governance and conduct Related party transactions Financial reporting and audit Audit Oversight team

General Modus Operandi of corporate fraud: Merry Go Round Money gets transferred back to into the director’s or management’s account Third party 3 Money gets transferred to series of other entities within or outside the country Director/Management Third party 2 Induces Company Third party 1 Enters into transactions with a third party controlled/friendly to the director or management, normally cash is paid upfront for benefits which may be received way later in the future. In many cases the assets involved did not exist or the prices were inflated.

Malaysian Code on Corporate Governance Alternative Practices Principles: Board leadership and effectiveness Effective audit and risk management Integrity in corporate reporting and meaningful relationship with stakeholders Practices Alternative Practices Intended Outcomes Step-up Practices Practised with CARE: Comprehand, Apply and REport

and effectiveness in discharging its duties Section 31L of the Securities Commission Act requires the Audit Oversight Board to prepare a report on its activities and provide the assessment of its performance and effectiveness in discharging its duties

Key ingredients for effective supervision Policy - Setting of regulatory expectations which are clear and implementable by market players and regulators. Plan - the approach adopted in supervision based on the realities of the market, with clear regulatory outcomes in mind, including internal structure and arrangements within the regulatory authority People - must have technical abilities and skills corresponding to the complexities of markets and their job functions, professional values and courage to act in fair and equitable manner command market respect

Key ingredients for effective supervision Platform - supervisory activities must be supported by appropriate tools including relevant technological systems to ensure relevant and timely data and information are available for timely intervention and decision making Performance assessment - should enable fair assessment of the impact of supervisory activities on market behaviour and investors protection, resulting in higher trust and confidence

Summary of thoughts Regulatory ecosystem and institutional arrangements are key to effective supervision, taking into consideration market realities, level of collaboration and cross border needs Market and corporate supervision are focused on the conduct of listed companies and how their securities are traded to instil confidence and protecting investors Audit oversight ensures the reliability of audited financial statements which are used in investment decisions, quality is influenced by diverse stakeholders Policy, Plan, People, Platform and Performance assessment are key ingredients in supervisory effectiveness