Move to protect 'sophisticated' individual investors

By Adeline Paul RajPublished: 2009/10/27

THE Securities Commission (SC), which is studying various regulatory reforms for the capital market, plans to expand its definition of "sophisticated" individual investors.

The move is meant to ensure greater protection for investors, even as enhancements are made to the sales practices of investment products in the market, chairman Tan Sri Zarinah Anwar said.

Regulation on this will be introduced soon, she added.

Investment banks would then have to check against this new definition whether complex investment products can be sold to a certain investor.



"The SC will introduce eligibility criteria that will ensure that sophisticated individual investors have the financial means and fully understand the risks that are associated with investing in complex investment products," Zarinah said in her keynote address at the Emerging Markets Programme in Kuala Lumpur yesterday.

Currently, individuals who invest at least RM250,000 in a single transaction, or have a net worth of at least RM3 million, can be considered as sophisticated investors.

"There's all this quantitative criteria currently, but as we've seen, there are so-called sophisticated investors who qualify (to be sold complex investment products) but they may not be very informed. Therefore, we need to see what other criteria should be incorporated in the definition," she told a press conference later.

Zarinah said there would be stronger oversight by the SC and enhanced requirements for market intermediaries to follow at various stages of the sale of investment products.

"We need to look at simplifying some of the information circulars and prospectus in the issue of complex products," she remarked.

Meanwhile, Greg Tanzer, secretary-general of the International Organisation of Securities Commissions, said that at the international level, regulators are giving a lot of emphasis to parts of the market that are either unregulated or lightly regulated.

"In pursuing market reform regulation, we need very much to balance objectives of systemic stability, market flexibility and responsiveness and investor protection," he said.