SC ready for pre-emptive action


BY K.P. LEE

THE Securities Commission (SC), having been granted new powers to disqualify and remove directors of listed companies even before they breach securities laws, has warned that it will not hesitate to flex its muscles to bring errant bosses to book. 

The amendments to the Securities Commission Act 1993 (SCA) and the Securities Industry Act 1983 (SIA), which came into effect last month, have broadened the SC's powers significantly, including disqualifying and removing from office directors found “likely to contravene” the SIA, SCA or any other securities laws. 

Ali Abdul Kadir

This allows the commission to take pre-emptive action, before a crime is committed by a director. Previously, such provisions were limited to directors who had contravened the SIA, but not other securities laws. 

Together with whistle-blowing provisions in the SIA, a series of considerably strengthened laws to enhance corporate governance and protection of minority shareholders in Malaysia will be in place before the year is out. 

In a statement yesterday, the SC said it would not hesitate to use its new powers to take action against, and penalise, actual and prospective abuses of power by directors as well as chief executive officers (CEOs). 

“Investor protection is of paramount importance, and the SC will not tolerate any transgressions,” SC chairman Datuk Ali Abdul Kadir said, adding that directors, as elected company stewards, were required to perform their duties professionally and with integrity. 

“In reviewing and approving submissions and corporate financial statements, the SC will certainly take into account wrongdoings in matters such as criminal breach of trust and tax evasion,” he added. 

The Minority Shareholder Watchdog Group welcomed the latest development, saying it was an “exciting move”. 

The watchdog group's chief executive officer Yusof Abu Othman said any law that “helps to prevent people of questionable intentions from being appointed a public company director must be welcomed”. 

Yusof Abu Othman

He said the commission's new powers were very significant as the previously grey area of directors’ “unethical but not yet illegal behaviour”, was now within the SC's realm. 

Under section 100 of the SIA, the SC can now apply to the High Court to remove, or bar from office or from becoming a director of any other public listed company, a director who is likely to break the law. 

Section 99C(3) of the act, meanwhile, allows the commission to apply for the removal of a director or CEO who is not a company director, who has contravened of any securities or exchange rules, or has had civil proceedings taken against him by the SC. 

The watchdog group, however, has asked the SC to exercise its powers carefully. Yusof said the implementation of such powerful tools should be done within well-defined guidelines and after due process. “We hope the rules will be embraced whole-heartedly, but they have to be used judiciously, and without fear or favour,” he said. 

Yusof said the revised laws could also be a good opportunity for the commission to answer criticism, from both within and outside the country, that enforcement of rules in Malaysia was lagging behind the legal framework. 

“The broad-based nature of the revised laws, and pre-emptive action allowed, may make it easier for assessors to increase their enforcement,” he said. 

The SC has recently been strengthening the capacity of its supervision and enforcement team, including widening the scope of investigations beyond reviewing accounts of public companies, and mobilising “flying squads'“ with the responsibility to undertake active monitoring and to alert the relevant authorities. 

In the SC's latest annual report, Ali said enforcement was “a key priority area for the commission”. 

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