SC’s proposed fee hike draws interest

Equitable changes: The SC building in Kuala Lumpur. It says the proposed fees will remain competitive, considering the growing market complexity.

THERE are mixed views from industry and market participants about the proposed changes in the fee structure of the Securities Commission (SC).

Some are all for it while others point out that there are pitfalls to it.

It was reported recently that the SC plans to revamp its fee structure and possibly impose a levy of up to 1.5% on revenue that is obtained from regulated market activity, and carried out by stockbroking companies and the likes of it.

Basically, the proposed fee changes and additional levy will impact income generated by all entities that come under the SC’s licensing requirements.

A fund manager who manages over RM2bil in client funds says imposing higher fees and a levy won’t completely address the increasing high cost structure that the SC is likely facing due to high expenditure.

“When the market is good, the higher fees will be beneficial but when the market turns bad, will it look to increase fees even more? How does this address its long-term expenditure issues?”

Notably, the proposed revision of the fees comes after the SC had its biggest net operating deficit (over RM54mil) in at least 10 years, recorded in 2023.

Another fund manager notes that the proposed new fee structure and levy, which are subject to the approval of the Finance Ministry, will likely result in a higher overall cost compared

to that of closest neighbour Singapore’s fee model.

“Singapore’s is a fixed fee model while from what I understand, Malaysia is proposing a levy to be paid based on revenue or the assets under management (AUM) value on top of having fixed fees.”

He points out that for fund management companies, the SC is considering to increase the current fixed fees, which include the lodgement fee of fund, fund annual fee, deed and prospectus registration fee and submission fees.

“In addition, it is looking to impose a variable fee on each fund management company’s AUM.

“Whatever high cost issues that it may be facing will eventually be passed on to the market by it charging much higher fees.

“It could become addicted to fee income, which may then compromise or come into conflict with its regulatory functions,” he says.

According to him, the SC should work on reducing its own cost structure and delegate some of its main functions to respective self-regulatory organisations like Bursa Malaysia Bhd and the Federation of Investment Managers Malaysia to reduce any burdens it may be facing.

High-net-worth investor Ian Yoong has a slightly different view and reckons it is timely for the SC to revamp the existing fee structure, which has been unchanged for more than three decades.

Extensive consultations

“The proposed increase in fees is justified by the greater sophistication and wider scope in the Malaysian capital market,” the ex-investment banker says.

He notes that the Malaysian capital market has evolved from mainly being equity-centric to now having multiple products such as derivatives, fintech-related products and so on.

“While the SC has been very effective in prosecuting wrong-doers, the legal processes tend to be very long-drawn-out. Many cases take more than a decade for judgement.

“In my view, the SC has done excellent work with the limited resources available to it,” Yoong says.

The SC generates revenue from a few sources including licence and registration fees, and penalty income.

Yoong notes that unlike the SC, the Securities and Exchange Commission (SEC) in the United States is funded by a combination of government funds and fees on the transactions of securities.

Meanwhile, in a reply to queries from StarBiz 7 on the development of the proposals, the SC says it has undertaken extensive consultations with various stakeholders, including capital market players and intermediaries.

“We have conducted more than 100 engagement sessions since March 2024 in a move to ensure a transparent and inclusive feedback process.

“We are cognisant of the potential impact on the capital market and have worked to ensure the proposed changes are equitable and proportionate,” it says.

The regulator of the domestic capital market says stakeholders have acknowledged the need for a fee review, given it hasn’t been updated since 1993.

However, differences remain on the quantum and basis, it adds.

“Following the stakeholders’ feedback, the SC has considered and amended its proposals to accommodate those views.”

Asked if the proposed changes are in line with what its other regional counterparts are doing, the SC says each jurisdiction has a unique regulatory structure, which makes direct comparisons difficult.

“Additionally, each country adopts different regulatory approaches. These will impact the extent to which regulatory costs are subsidised.

“Nevertheless, the SC’s proposed fees will remain competitive, considering the growing market complexity, and the cost to the SC in subsidising the market over the last 30 years.”

The SC adds that any fee adjustments will be underpinned by the principle of proportionality, which will commensurate with the scale, complexity and nature of the product or regulated activity.

The SC is a self-funded statutory body and is responsible for the regulation and development of the local capital market.