Introduction
Regulation of shareholdings


Introduction

The Financial Services Act 2013 came into operation on June 30 2013 (with the exception of certain provisions relating to insurance). The new act is the culmination of the government's efforts to modernise and harmonise the various laws that govern the financial services sector in Malaysia.

While the principal regulatory objectives of the new act are to promote financial stability and protect the rights and interests of consumers of financial services and products, the act also offers more extensive regulation on the shareholding of licensed persons (as defined below).

Regulation of shareholdings

Acquisition of interest in shares
Similar to the Banking and Financial Institutions Act 1989 and the Insurance Act 1996, the new act requires the approval of the Central Bank of Malaysia or the minister of finance to be obtained before the acquisition of interest in shares that exceed the prescribed percentages or result in a change in control of a licensed person. A 'licensed person' under the new act refers to a person licensed to carry on banking business, insurance business or investment banking business.

'Interest in shares' is defined in Schedule 3 of the new act and includes both legal and beneficial interest in shares. Such interest can arise when a person enters into a contract to acquire shares or has a right to have a share transferred to it. A person is also deemed to have an interest in shares where it holds shares jointly with another person. However, some exceptions do apply, such as where the interest is held by a person as security or as a bare trustee.

The new act requires a person to obtain the Central Bank's approval before entering into an agreement to acquire an interest in shares that would result in it holding an aggregate interest of 5% or more of shares in a licensed person.

The new act also requires a person to obtain the Central Bank's approval before entering into an agreement to acquire an interest in shares which would result in it holding an aggregate interest in shares of a licensed person equal to or greater than any multiple of 5%, or the percentage holding that triggers a mandatory offer under the Code on Takeovers and Mergers (ie, 33% or the 2% creeping rule).

The minister's approval is also required before a person enters into any agreement that will result in such person holding an aggregate of more than 50% of the interest in shares of a licensed person under the new act.

For the purposes of determining the interests held (or those to be held) by a natural person in a licensed person, the interests of such person are to be aggregated with shares held by his or her spouse, child, family corporation and persons acting in concert therewith.

Control over a licensed person
Section 88 of the new act requires a person to obtain the approval of the minister before taking control of a licensed person. A person is deemed to have control if it:

  • has an interest of more than 50% of shares in a licensed person; or
  • unless proven otherwise, has the power to appoint the majority of the directors of a licensed person or to make and effect business and administration decisions of a licensed person, or is a person in accordance with whose directions, instructions or wishes the directors or senior officers of a licensed person are accustomed or under an obligation to act.

Disposal of interest in shares
The new act also requires a person to obtain the approval of the minister before entering into an agreement that would result in it holding less than a 50% interest in shares in, or ceasing to have control over, the licensed person. This applies where such person has:

  • an aggregate interest in shares of a licensed person of more than 50%; or
  • an aggregate interest of 50% or less, but has control over the licensed person.

Maximum shareholding of an individual
The new act stipulates that the maximum permissible interest in shares that may be held by an individual in a licensed person is 10%. Unlike under similar acts (eg, the Islamic Financial Services Act 2013), the Central Bank has no discretion to waive this limit.

For further information on this topic please contact Sheba Gumis at SKRINE by telephone (+60 3 2081 3999), fax (+60 3 2094 3211) or email ([email protected]). The SKRINE website can be accessed at www.skrine.com.