Tan Sri Zarinah Anwar certainly got more than what she had bargained for when she joined the Securities Commission (SC) just over 10 years ago. Her aim originally was to serve as the regulator’s deputy chief executive for three years. It was one of the few plans of hers that went unfulfilled.
During her time at the SC, she has spent countless hours making the regulatory body the institution it is today. She retires today and looks forward to having the long, leisurely lunches that have been missing from her tight daily schedules these past several years. Below are excerpts of her interview with StarBizWeek’s Errol Oh, Jagdev Singh Sidhu and John Loh, when she talks about her work at the SC:
Strengthening the SC and capital markets
StarBizWeek: What has been most rewarding about being the SC chairman?
Zarinah: I’m very thankful for having been given the opportunity to help develop the capital market, to have been able to bring about the needed changes to optimise the growth of the market, both in terms of development and regulation. When I joined the SC, the capital market was trying to recover from one of the worst crises, and we had an equity market that was suffering from low investor confidence. The corporate bond market was relatively underdeveloped, and corporate governance standards had much to improve. The SC was also a young organisation at the time. We were just eight years old and we faced these huge challenges.
But we worked really hard to strengthen governance, strengthen market and self-discipline, grow our corporate bond market, introduced new products, strengthen investor education. We had to take many, many initiatives in parallel. We also implemented internal effectiveness programmes to strengthen the SC itself as an institution so that we can enhance our regulatory capacity. And today our market has grown nearly three times in size compared with 2001 – from RM740bil in 2001 to RM2.13 trillion as at end-2011, about 2.7 times. Our bond market has made remarkable progress, as a percentage of gross domestic product, it is the third largest local currency bond market in Asia after Japan and South Korea. Our Islamic capital market has similarly grown exponentially, from RM345bil in 2001 to RM1.16 trillion at the end of 2011. Our efforts at improving governance have also been recognised and the World Bank’s Doing Business Report has ranked us fourth in the world for several years for quality of investor protection and many other recognitions. We are considered a well-regulated market. But as I said, nothing could have been achieved without the people of SC who have worked really, really hard and unstintingly to help deliver all these achievements.
But some might say that maybe a more market-friendly approach could have been instituted.
We have always striven to arrive at a balance. Our approach to regulation is multi-pronged. We depend on market and self-discipline to complement regulatory discipline. So it really is up to the market to show that they can self-regulate, and when they exercise more self-regulation and discipline and the investors have correspondingly grown in terms of their maturity, their ability to also look after themselves, then there would be less regulatory discipline needed. So we have striven to work together with industry. We have made our guidelines very clear and transparent, so that industry can comply with the regulation. The more they do that, the less regulatory intervention will be required.
You said in an interview in 2006 to the effect that, “If you follow the rules there won’t be any problems.” But some say that in the capital market, we can’t always follow the rules. What do you say to that?
The global financial crisis has shown that in certain areas, there have not been enough rules. And when we find that rules have been inadequate, we have to introduce rules. Our job is to protect investors. So where the complexity of products for example have led to losses being incurred by investors because the risks have not been explained to them, then there have to be new regulations put in place to ensure investors’ interests are adequately protected.
How has the SC and capital market changed in the time you’ve been SC chairman?
I joined when first Capital Market Masterplan (CMP1) was being implemented and now am leaving behind Capital Market Masterplan 2 (CMP2) for implementation by my successor. The stark difference in the two plans mark the changes that have taken place. CMP1 had focused on developing the building blocks of a comprehensive domestic capital market that would be the preferred fundraising centre for Malaysian companies. We had to develop nascent sectors like the bond market, the fund management industry, and we had to develop a strong governance and regulatory framework. And we’ve managed to do this as reflected in the size and dimension of our market.
The next 10 years will present a different set of challenges. Global regulatory reforms will foster new international standards that we need to take cognisance of, we need to manage new and different risks to investors arising from greater product complexities, we need to ensure more effective reach and oversight, and ensure higher standards and capabilities of market participants. We must embed a culture of compliance and good governance amongst all market participants. But above all our market today is marked by greater liberalisation, internationalisation and cross border activities.
We project the market to grow to more than double its size to RM4.5 trillion by 2020. Much of this growth is going to come from internationalisation. Thus, international participation in our markets, the efforts undertaken to facilitate participation by our players in international markets will enable our intermediaries to seek growth with a global mindset now. These will be the new challenges that will be looked into and pursued over the next 10 years.
We have to work together with our counterparts and are involved in international policy and standard setting, and naturally, the development efforts have got to well supplemented by any regulatory requirements that has to accompany the development.
Building new capacities
If you had stayed on as SC chairman, what would have been your next priority?
Of course, we have to ensure the implementation of CMP2. We have outlined our strategies for the next 10 years, with targets set for the growth of the market, and I think this kind of structured planning process is very important. Close monitoring of results and reporting for accountability and transparency will enable us to achieve our vision for the orderly development of our capital market. But there are two areas I would put particular emphasis on.
First is capacity building, both at the regulator and the industry front. The market has become more complex and regulators are confronted by all kinds of challenges. There is a proliferation of new products of increasing complexity, there are increases in cross border transactions, changes in market structure and technological innovation such as Internet trading and high frequency trading, they all bring new risks to integrity, efficiency and stability of markets. And therefore securities regulators have got to be equipped to respond and to anticipate and manage these risks adequately. So they have to be aware of new and evolving products, new business models and structures, and ensure robust oversight of the market. Regulatory capacity building is therefore a key priority.
Similarly, industry too needs to adapt to a changing environment where the use of technology has become more pervasive and knowledge in the form of skills and capacity for innovation will increasingly define competitive advantage and growth potential. Firms must therefore invest in learning and acquisition of skills by their workforce.
The second is governance. Past financial crises have shown that growth is not sustainable unless it is underpinned by high standards of integrity, governance and accountability. Companies pursue profits, yes, but this must be underscored by a strong sense of responsibility.
Enforcement and oversight
What do you think people often don’t understand about the SC and how it works?
The SC regulates a large and highly complex marketplace. But we operate within boundaries defined by securities laws, and in accordance with established rules and guidelines. This often gives rise to gaps in expectations. Assumptions are often made that if a listed company commits a wrong, then it is the SC’s responsibility to investigate and punish. This is not always the case. The SC can only investigate if the offence comes within the ambit of its laws. There are offences committed by directors that come within the Penal Code or the Companies Act. The SC has no jurisdiction over such cases. It used to be very frustrating for us when we were blamed for not prosecuting directors for siphoning funds or assets from public listed companies (PLCs). We worked hard to amend our laws to enable us to consolidate efforts in promoting good governance amongst directors of PLCs and finally in 2009, the CMSA was amended to give the SC powers to prosecute persons for causing wrongful loss to PLCs.
Many also assume that whenever there is a suspicious transaction, there is an offence, and we must go after the perpetrators and punish them. It must be understood that the law provides very clear ingredients of offences and we must ensure that we have adequate evidence to prove the offence before we can initiate any action. Sometimes, after investigation, we find there is no wrongdoing. In every case we have to look at the evidence, the facts of the case and then decide on the merits of each case.
Enforcement is also not just about criminal prosecution, we also institute civil enforcement where we seek restitution for investors who have lost money and administration sanctions like reprimands and cautions for breaches of guidelines and where swift action is necessary for example we require a listed company to restate its accounts.
The sheer size and scale of the market that we regulate means that we cannot investigate every breach. We have to focus on breaches that have an impact on market or investors or that have a public interest dimension. Thus we adopt a multipronged approach to regulation. It is important that we strengthen market and self-discipline to complement regulatory discipline. We encourage firms and PLCs to regulate themselves, ensure compliance and good governance, and at the same time we have to undertake a huge amount of investor education to enhance investor understanding about their investments and their rights.
The other thing people may not be fully aware of is that over the last few years we have started to encourage consultation. So corporate advisers who are unclear about our rules or guidelines should consult us and seek our guidance. We prefer to assist them to do the right thing rather than to punish them for breaching the law. We want to take that approach where we guide and educate, and at the end everyone benefits.
There have been many milestones in your time at the SC. Talk about some of these.
We have established the Audit Oversight Board to oversee public auditors and to protect the interests of investors because it oversees the public auditors and ensures the quality and reliability of audited financial statements of public interest entities, including PLCs.
We also launched Sidrec (Securities Industry Dispute Resolution Centre) which provides free services for adjudication of claims below RM100,000 between investors and capital market intermediaries. We successfully amended our laws to enable us to prosecute those who cause wrongful loss to PLCs, I think that’s a very major achievement. I’m also really proud that we were able to start work to establish the private retirement scheme (PRS) to supplement savings for retirement. We are on target for the funds to be launched in the third quarter of this year.
PRS will enhance retirement options for Malaysians as well as contribute towards the growth of the capital market. It is one part of the total pension reform which the Government has started and for which the Finance Ministry has oversight. Apart from its value as an option for additional retirement savings, the SC’s PRS scheme is an important tool to enhance the demand side of the fund management industry. We have amended the laws to provide for this and are now in the process of finalising the guidelines, selecting the providers and establishing a private pension administrator. The administrator will play a key role as a one-stop centre to facilitate and maintain all PRS-related transactions made by contributors and members. Employers which have their own pension funds could also place their funds with PRS Providers for management on their behalf.
Unfortunately, the E&O case has a bearing on how some people view your chairmanship of the SC. How do you feel about this coming at the tail-end of your career?
First of all, given the nature of the SC’s responsibilities, potential conflict of interest can arise at any time and can affect any member of the commission or management or staff. And that is why the law is very clear. It anticipates potential conflict of interest situation and prescribes how this must be handled. The SC has very strict rules regarding this and we require strict compliance. We have robust internal controls and governance systems, and decision-making processes to ensure that any potential conflict does not result in a real conflict.
Members of the commission, all of whom are very experienced, and are non-executive (except the chairman and deputy chief executive), they play an active role in most of these processes. Decisions, whether on issuance of a licence, approval of IPOs or the taking of enforcement action, these are all made by committees established by the Commission or by management with checks and balances instituted along the way.
No one individual can make a decision on his or her own in the SC. The commission may delegate some of its decision-making authority to the chairman. Any decisions made by the chairman pursuant to delegated authority by the commission are duly minuted, and tabled to the commission for ratification. It’s all in writing, recorded and transparent.
The way we have handled the E&O case is no different from the way the SC handles any other case. The provisions of the law, and all internal rules and governance requirements have been fully complied with. It’s sad that there have been parties with vested interest and personal agenda who have sought to tarnish the SC’s and my reputation. We are happy to receive legitimate complaints which we will look into, but fabrication of lies and deliberate misrepresentation are completely non-productive and destructive. The undermining of institutions of government by such irresponsible parties cannot be tolerated. We have instituted action in several cases.
But I have not allowed these people to distract me from doing my job. I had the support and encouragement of everyone who mattered and this has allowed me to single-mindedly focus on doing what I had to do, just as I have done for the last 10 years. And now that my retirement has been announced, I have received a deluge of very kind, thoughtful letters, messages of appreciation from many people, both domestically and internationally, many requests for courtesy calls, many invitations to farewell lunches and dinners, not to mention those who demand to be invited to my farewell party. They have given me great comfort and confidence that all the efforts I have invested in this job have not been in vain. Of course I’m disappointed by what happened (the attempts to undermine our integrity), but as far as I am concerned, I have only ever tried to do my best. For me, nothing less will do.
Why did you say yes to joining the SC?
Well, basically, I was made an offer I was not allowed to refuse. I had always thought I would retire in Shell where I worked for 22 years and where I had risen from being a young lawyer in my mid-20s to become the deputy chairman. But one day in August 2001, I still remember that day very vividly, I got a call from Datuk Ali Kadir who summoned me to the SC and he told me he had discussed with the Prime Minister and it had been agreed that I shall come to the SC to become his deputy. As you can imagine, I was stunned to say the least. So I asked if I had a choice. And Ali looked me straight in the eye and said, ‘Well, if you want a choice, you should make an appointment to see the PM.’ So intimidated was I that I meekly accepted, thinking that I shall return to Shell when my contract was completed in three year’s time. But I must admit this was one plan I had failed to execute. One thing led to another, and there was just so much to be done, and 10 years, four months later here I am.
Wanting to leave
Why have you decided not to continue as SC chairman? How difficult was it for you to make up your mind about this?
I think change in leadership can bring renewal and regeneration to an organisation. New people bring fresh ideas and perspectives. Even though the long-term direction may not change, for example in the SC we are guided by our 10-year CMPs, the path to reaching the destination may differ.
Naturally after more than 10 years, I am sad to leave. But I am comforted by the fact that I leave the SC in competent hands.
What are your plans after leaving the SC?
All my life I have been dictated by plans. So it gives me great satisfaction to be able to say that I have no plans now. It’s a great achievement (laughs). But I probably will have withdrawal symptoms, wondering why I haven’t received the 300 emails I normally receive in a day.
What would you miss?
The people. It’s the people that make the organisation. I have mentioned them earlier and I will mention them again. They have been loyal, dedicated and supportive. Always there when I needed them. So I will miss them.
If you could have a do-over, what would you change about your time at the SC?
I would want to find a way to do all the things I had to do and still find a little time for my family and for me.
What did your family think when you had to devote so much time to work?
Of course they were not very happy. I hardly ever have time for them or for myself. I have two daughters, but they are adults, so fortunately they don’t need me as much. I would like to do more travelling without the office chasing me.
Related Stories: SC's long list of achievements Tough job for a tough lady Changing of guard Ready for recommendations?