GUIDELINES ON INVESTMENT IN SHARES AND INTEREST

PART A INTRODUCTION AND OVERVIEW.........................................................1 1. Overview of the Guidelines.................................................................................1 2. Definitions................................................................................................................2 3. Legal Enforceability and Application...............................................................3 4. Scope of Guidelines..............................................................................................3 PART B BROAD PARAMETERS.............................................................................4 5. Types of Allowable Investments........................................................................4 6. Supervisory Expectations of Banking Institutions.......................................5 PART C PRUDENTIAL REQUIREMENTS...........................................................12 7. Aggregate Limits..................................................................................................12 8. Capital Adequacy Requirements.....................................................................15 9. Non-Compliance...................................................................................................15 APPENDIX 1: SPECIFIC REQUIREMENTS FOR DEBT-EQUITY CONVERSION ARRANGEMENTS............................................................................16 BNM/RH/GL 001-30 Prudential Financial Policy Department Guidelines on Investment in Shares, Interest-in-Shares and Collective Investment Schemes Page 1/18 PART A INTRODUCTION AND OVERVIEW 1. Overview of the Guidelines 1.1 The revised Guidelines on Investment in Shares, Interest-in-Shares and Collective Investment Schemes (the Guidelines) adopts a more principle- based regulatory approach towards banking institutions’ equity-related activities based on the following principles and end-objectives: (i)

allowing greater flexibility for the management of banking institutions to define the nature of equity-related activities to be undertaken; (ii) promoting improvements in risk management processes and the development of sound practices governing equity-related activities; and (iii) continuously enhancing the regulatory and enforcement framework in order to curb imprudent risk-taking among individual institutions and maintaining the safety and soundness of the banking system. 1.2 The new framework moves away from overly prescriptive requirements thus enabling banking institutions to define the scope of their equity- related activities according to their capacity and capability. Consequently, Bank Negara Malaysia (the Bank) expects greater oversight by the board and senior management in ensuring the development of robust and comprehensive internal policies and procedures to govern the banks’ equity-related activities. For instance, while moving away from the “one-size-fits-all” limit structure on exposure to a single equity, the new framework expects senior management to determine their own internal limits and ensure the effective compliance with such limits in safeguarding against concentration risk. More broadly, the Bank would expect the board and senior management to clearly articulate the banking institution’s BNM/RH/GL 001-30 Prudential Financial Policy Department Guidelines on Investment in Shares, Interest-in-Shares and Collective Investment Schemes Page 2/18 investment risk appetite and its relation to the institution’s future business directions and risk management activities. 2. Definitions 2.1 For the purpose of this guidelines, the following terms used are defined as follows: Equity-related activities : Investments in shares, interest-in-shares and collective investment schemes. Share : Any equity of a corporation, whether with voting or non-voting rights. Interest-in- share : Any right to purchase or receive shares of an entity, whether actual, prospective or contingent. Collective investment schemes (CIS) : Any arrangement made for the purpose, or having the effect, of providing facilities for persons to participate in or receive profits or income arising from the acquisition, holding, management or disposal of securities, futures contracts or any other property, or sums paid out of such profits or income. In such schemes, participants do not have day-to-day control over the management of the schemes’ assets. BNM/RH/GL 001-30 Prudential Financial Policy Department Guidelines on Investment in Shares, Interest-in-Shares and Collective Investment Schemes Page 3/18 3. Legal Enforceability and Application 3.1 The Guidelines are issued pursuant to section 126 of the Banking and Financial Institutions Act 1989 (BAFIA). 3.2 The Guidelines shall be applicable to all banking institutions licensed under the BAFIA....

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