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

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

4. 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

5. 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

6. 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.

7. 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

10. 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

11. 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

12. 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

13. 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