SC signs landmark pact on Islamic investment products

PUTRAJAYA: The Securities Commission (SC) and the Dubai Financial Services Authority (DFSA) have signed a landmark agreement that would allow Islamic investment products to be marketed and sold in each other's country, a move seen as a growth catalyst for the domestic Islamic capital market. 

The agreement, which was the first of its kind for Islamic investment products and the first that would see foreign unit trusts being sold directly to Malaysians, would allow Malaysian companies and Dubai-registered companies to sell Islamic investment products between the countries with minimal regulatory intervention. 

“By entering into a mutually recognised arrangement, Malaysia and the DIFC are demonstrating our commitment to accelerate the growth of our respective investment management industries through trading in each other's markets of mutually-recognised investment products,'' SC chairman Datuk Zarinah Anwar said in a statement released after the signing. 

“The mutual recognition framework will provide many benefits to market participants, including lower regulatory cost and an enlarged investor base.'' 

Under the agreement, Malaysian Islamic investment products such as unit trusts, real estate investment trusts (REITs), closed-end funds or exchange traded funds would be automatically approved by the DFSA to be marketed and sold in the Gulf country, thus opening a new market for Malaysian unit trust companies to tap the oil-rich Gulf region. 

Likewise, similar products manufactured in Dubai and approved by the DFSA would be marketed and sold through agents such as unit trust companies or other financial institutions in Malaysia. All that is required is for the Islamic investment product to file its prospectus with the relevant authority of each country. 

Zarinah Anwar exchanging documents with David Knott, witnessed by Second Finance Minister Tan Sri Nor Mohamed Yakcop

Malaysian unit trusts companies would, however, work under current Bank Negara regulations that from April 1 unit trust companies would be allowed to invest 50% of their net asset value abroad. 

On the issue of syariah compliance, Islamic investment products from Malaysia and Dubai International Financial Centre (DIFC) would be attaching the methodology used in determining compliance for investors to peruse. 

The SC said Malaysian capital market intermediaries would benefit from having a gateway to distribute their Islamic products to a fast-growing market while Malaysian investors would have access to a range of Islamic products from DIFC. 

“The DFSA is delighted that, as a result of this joint initiative, DIFC domestic funds will be the first foreign funds permitted to be sold in Malaysia.  

“This arrangement is a positive step for both jurisdictions, and is intended to facilitate the cross-border flow of Islamic capital market products,'' DFSA chief executive David Knott said in the statement.

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