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SIDC Module 16 study materials
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SIDC Module 16 practice questions

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Question 1Law & Regulation

Under the SIDC regulatory framework, which document must a firm provide to a retail client before or at the time of concluding an investment services agreement?

  1. The firm's internal compliance manual
  2. The personal trading records of the firm's directors
  3. A written client agreement setting out the terms of service and applicable disclosures Correct answer.
  4. The firm's annual audited financial statements

Explanation

Client-facing regulation requires that retail clients receive a written agreement and prescribed disclosures before or when the service relationship begins, so the client understands terms, fees, and protections. Internal documents and directors' records are not client deliverables.

Question 2Law & Regulation

A regulated firm becomes aware that a client has provided false identity information during onboarding. What is the firm's most appropriate regulatory response?

  1. Refer the matter to the client's employer
  2. File a suspicious transaction or activity report with the relevant authority Correct answer.
  3. Continue servicing the client but charge a higher fee
  4. Close the account quietly without any record

Explanation

Anti-money-laundering obligations require firms to report suspicious activity to the competent authority through the prescribed channel. Quietly closing accounts or self-imposed remedies without reporting defeats the reporting regime.

Question 3Law & Regulation

Which principle underlies the 'know your client' requirement in securities regulation?

  1. Maximizing the firm's trading volume
  2. Guaranteeing investment returns to clients
  3. Reducing the firm's tax liabilities
  4. Ensuring recommendations and services are suitable for the client's circumstances Correct answer.

Explanation

Know-your-client rules exist so that firms can assess suitability, understand the client's objectives and risk tolerance, and deliver appropriate services. They are not a mechanism for revenue maximization or performance guarantees.

Question 4Law & Regulation

A firm's compliance officer discovers a material error in a client's account valuation. Under general regulatory expectations, what should happen first?

  1. Adjust only the accounts of clients who complain
  2. Correct the error, assess client impact, and notify affected clients promptly Correct answer.
  3. Delete the erroneous records to avoid confusion
  4. Wait until the next quarterly reporting cycle

Explanation

Regulatory expectations require prompt remediation of errors, assessment of harm, and timely client notification so that clients are not misled. Delaying or selectively correcting errors undermines market integrity and client protection.

Question 5Law & Regulation

What is the primary purpose of segregating client assets from the firm's own assets?

  1. To simplify the firm's tax reporting
  2. To increase the firm's leverage
  3. To protect client property in the event of firm insolvency Correct answer.
  4. To allow the firm to use client assets for proprietary trading

Explanation

Segregation rules keep client property separate so that it can be identified and returned if the firm fails, reducing the risk of loss from firm insolvency. Using client assets for proprietary purposes is precisely what segregation seeks to prevent.

Question 6Law & Regulation

Which body is typically responsible for supervising compliance with securities legislation in a domestic market?

  1. The securities regulator or commission Correct answer.
  2. The ministry of tourism
  3. The central bank's monetary policy committee
  4. The stock exchange's listing committee alone

Explanation

Securities regulators are established to administer securities law, license firms, and enforce conduct rules. Other bodies may have related roles, but the securities commission is the primary conduct supervisor.

Question 7Law & Regulation

A firm wants to market a new investment product to retail clients. What must the marketing material generally include?

  1. A guarantee of capital protection in all market conditions
  2. A balanced presentation of risks and returns, avoiding misleading claims Correct answer.
  3. The names of the firm's largest shareholders
  4. Only the historical performance chart

Explanation

Financial promotions must be fair, clear, and not misleading, presenting both risks and potential returns. Guarantees that cannot be honored and one-sided performance data breach these standards.

Question 8Law & Regulation

Which of the following best describes the role of a compliance function within a regulated securities firm?

  1. To generate trading profits for the firm
  2. To approve the firm's marketing budget
  3. To independently monitor and advise on adherence to laws, regulations, and internal policies Correct answer.
  4. To negotiate client fees

Explanation

Compliance provides independent oversight, advises the business on regulatory obligations, and monitors adherence to laws and internal policies. It is not a profit center or a commercial negotiation function.

Question 9Law & Regulation

An investment adviser recommends a high-risk product to a retired client with a conservative profile and limited income. Which regulatory concern is most directly engaged?

  1. The exchange's listing fees
  2. The product provider's marketing budget
  3. Suitability of the recommendation for the client's circumstances Correct answer.
  4. The adviser's personal tax position

Explanation

Suitability rules require recommendations to match the client's objectives, risk tolerance, and financial situation. A high-risk product for a conservative retiree raises a clear suitability concern.

Question 10Law & Regulation

A firm outsources its client onboarding checks to a third-party provider. How does the regulator generally view the firm's responsibility?

  1. Only the provider's home regulator is responsible
  2. Responsibility transfers entirely to the provider
  3. The firm is exempt from due diligence
  4. The firm remains responsible for ensuring regulatory requirements are met Correct answer.

Explanation

Outsourcing does not transfer regulatory accountability; the firm remains responsible for the outsourced activity and must supervise the provider. This principle preserves accountability regardless of operational arrangements.

Question 11Law & Regulation

Which of the following constitutes market abuse under securities law?

  1. Rebalancing a diversified portfolio according to a client mandate
  2. Trading on material non-public information about a pending takeover Correct answer.
  3. Publishing a research report with a disclosed conflict of interest
  4. Executing a client order at the best available price

Explanation

Insider trading on material non-public information is a core form of market abuse because it undermines market fairness and integrity. Disclosed research, mandate-driven rebalancing, and best execution are legitimate activities.

Question 12Law & Regulation

A firm discovers that one of its traders has been placing orders to create a false impression of demand. What conduct has occurred?

  1. Client suitability assessment
  2. Portfolio diversification
  3. Best execution
  4. Market manipulation through false or misleading orders Correct answer.

Explanation

Placing orders to create a misleading appearance of market activity is manipulation, often described as spoofing or layering. Such conduct distorts price discovery and is prohibited.

Question 13Law & Regulation

Under conflict-of-interest rules, how should a firm handle a situation where its proprietary trading interests conflict with a client order?

  1. Prioritize the firm's proprietary position over the client
  2. Execute the client order only after proprietary positions are closed
  3. Identify, manage, and disclose the conflict, and act in the client's best interest Correct answer.
  4. Ignore the conflict if it is small

Explanation

Conflict rules require firms to identify conflicts, manage them through controls such as information barriers, and disclose where appropriate, always prioritizing fair treatment of clients. Prioritizing the firm's book over clients is a breach.

Question 14Law & Regulation

Which recordkeeping expectation typically applies to client orders and communications?

  1. Records must be retained for a defined regulatory period and be readily retrievable Correct answer.
  2. Records may be discarded once the trade settles
  3. Only paper records are acceptable
  4. Records need only be kept if a complaint arises

Explanation

Regulators require firms to retain order and communication records for a prescribed period and to produce them promptly on request. This supports supervision, investigations, and client dispute resolution.

Question 15Law & Regulation

A client asks a firm to execute a transaction that the firm suspects is designed to evade sanctions. What is the firm's appropriate action?

  1. Route the transaction through an affiliate
  2. Ask the client to sign a waiver
  3. Decline or freeze the transaction and escalate to the appropriate authority Correct answer.
  4. Execute the transaction and note the concern in the file

Explanation

Sanctions compliance requires firms to prevent prohibited transactions and escalate suspected evasion to the competent authority. Executing or rerouting the transaction would facilitate a breach.

Question 16Law & Regulation

What is the purpose of a firm's product governance process for new products?

  1. To eliminate all investment risk
  2. To maximize sales volume in the first quarter
  3. To avoid regulatory filing requirements
  4. To ensure products are designed for and distributed to an appropriate target market Correct answer.

Explanation

Product governance requires firms to define a target market and ensure the product's features, risks, and distribution align with that market. It is not a sales-maximization or risk-elimination exercise.

Question 17Law & Regulation

A firm's employee discloses confidential client information to a friend without authorization. Which regulatory obligation is most directly breached?

  1. Best execution
  2. Market making obligations
  3. Client confidentiality and data protection Correct answer.
  4. Capital adequacy

Explanation

Unauthorized disclosure of client information breaches confidentiality and data protection duties owed to clients. Such duties require controls on access, use, and sharing of client data.

Question 18Law & Regulation

Which statement best describes the regulator's power to conduct inspections of a licensed firm?

  1. Inspections require a court order in all cases
  2. Inspections may only occur with the firm's prior written consent
  3. Inspections are limited to firms that have received client complaints
  4. The regulator may inspect books, records, and premises within its statutory powers Correct answer.

Explanation

Securities regulators typically hold statutory powers to inspect licensed firms' books, records, and premises to assess compliance. Consent or complaints are not universal preconditions, though procedural safeguards may apply.

Question 19Law & Regulation

A firm uses a client's assets temporarily to settle its own obligations and restores them the next day. How is this treated under client asset rules?

  1. A breach of client asset rules, since client assets may not be used for the firm's own obligations Correct answer.
  2. Permissible if the amount is small
  3. Permissible because the assets were restored
  4. Permissible if the client is not informed

Explanation

Client asset rules prohibit using client property to meet the firm's own obligations, even temporarily, because it exposes clients to loss. Prompt restoration does not cure the breach.

Question 20Law & Regulation

Which of the following best reflects the regulator's approach to treating customers fairly?

  1. Fair treatment is a marketing slogan without regulatory effect
  2. Firms must embed fair treatment in culture, product design, and post-sale handling Correct answer.
  3. Fair treatment is satisfied by disclosing fees in the contract only
  4. Fair treatment applies only to institutional clients

Explanation

Treating customers fairly is an outcomes-based principle covering culture, product design, sales, and post-sale service. It is not satisfied by boilerplate disclosure or limited to certain client types.

Question 21Law & Regulation

A firm's anti-money-laundering program lacks independent testing. Which regulatory weakness does this most directly represent?

  1. Overly strict suitability checks
  2. Inadequate third-party testing and program oversight Correct answer.
  3. Excessive capital reserves
  4. Inefficient trade execution

Explanation

AML programs typically require independent testing to assess effectiveness alongside policies, training, and monitoring. The absence of independent testing is a governance gap in the program.

Question 22Law & Regulation

An issuer releases selective material information to a favored analyst before public announcement. What is the primary regulatory concern?

  1. The exchange's trading hours
  2. The issuer's dividend policy
  3. Selective disclosure undermining equal access to material information Correct answer.
  4. The analyst's compensation structure

Explanation

Selective disclosure of material information creates information asymmetry and undermines market fairness, which is why timely public disclosure rules exist. Compensation, dividend policy, and trading hours are not the core concern.

Question 23Law & Regulation

A firm operates a cross-border service into a jurisdiction where it holds no license. Which regulatory risk is most significant?

  1. Reduced technology spending
  2. Higher employee turnover
  3. Breach of local licensing and conduct requirements, exposing the firm to enforcement Correct answer.
  4. Increased marketing costs

Explanation

Providing regulated services without required local authorization can breach licensing and conduct rules and trigger enforcement, including restrictions on doing business. Commercial cost factors are secondary to this legal risk.

Question 24Law & Regulation

A firm's incentive structure rewards advisers solely on sales volume regardless of client outcomes. Which regulatory principle is most at risk?

  1. Complying with listing rules
  2. Managing conflicts of interest to avoid mis-selling Correct answer.
  3. Ensuring timely trade settlement
  4. Maintaining adequate liquidity

Explanation

Remuneration structures that reward volume alone create conflicts that can drive unsuitable sales, so regulators expect firms to design incentives that support fair client outcomes. Liquidity, settlement, and listing rules concern different obligations.

Question 25Law & Regulation

A regulator requires a firm to hold a defined minimum amount of regulatory capital. What is the primary purpose of this requirement?

  1. To ensure the firm can absorb losses and meet obligations to clients and counterparties Correct answer.
  2. To fund marketing campaigns
  3. To increase shareholder dividends
  4. To reduce the number of licensed competitors

Explanation

Capital requirements are prudential safeguards ensuring firms maintain sufficient financial resources to absorb losses and honor obligations, supporting market stability. They are not tools for dividend policy or competitive restriction.

Question 26Law & Regulation

Under the SIDC regulatory framework, which legislation is the principal statute governing the offer of securities and the operation of capital markets in Malaysia?

  1. Securities Industry Act 1983
  2. Financial Services Act 2013
  3. Capital Markets and Services Act 2007 Correct answer.
  4. Companies Act 2016

Explanation

The Capital Markets and Services Act 2007 (CMSA) is the primary statute regulating the offering of securities, licensing of capital market intermediaries and market conduct in Malaysia; the Securities Commission administers it. The Companies Act governs corporate law, the Financial Services Act covers banking and insurance, and the Securities Industry Act 1983 was repealed and replaced by the CMSA.

Question 27Law & Regulation

Which body is the statutory regulator responsible for the development and regulation of the Malaysian capital market?

  1. Bursa Malaysia Berhad
  2. Bank Negara Malaysia
  3. Securities Commission Malaysia Correct answer.
  4. Companies Commission of Malaysia

Explanation

The Securities Commission Malaysia (SC) is the statutory regulator established under the Securities Commission Act 1993, with responsibility for regulating and developing the capital market. Bursa Malaysia is the exchange operator, Bank Negara regulates banking and insurance, and the Companies Commission handles company registration.

Question 28Law & Regulation

An individual wishes to carry on the regulated activity of dealing in securities in Malaysia. What is the primary licensing requirement under the CMSA?

  1. A Capital Markets Services Licence granted by the Securities Commission Correct answer.
  2. A moneylending licence issued by the local authority
  3. Membership of an industry self-regulatory association
  4. Registration with Bursa Malaysia as a trading participant only

Explanation

Dealing in securities is a regulated activity under the CMSA, and a person must hold a Capital Markets Services Licence (CMSL) issued by the Securities Commission to carry it on. Exchange trading participation or trade association membership does not substitute for the statutory licence.

Question 29Law & Regulation

A licensed fund management company is required to appoint a compliance officer. What is the primary statutory purpose of this appointment?

  1. To act as the firm's external auditor
  2. To approve the firm's marketing budget
  3. To guarantee investment returns for clients
  4. To monitor and ensure the firm's adherence to regulatory requirements and internal policies Correct answer.

Explanation

The compliance officer's role is to monitor the firm's activities against regulatory obligations and internal controls, and to report compliance matters to senior management and the board. The function is preventive and advisory, not a guarantee of performance or an audit function.

Question 30Law & Regulation

Under the CMSA, a person who knowingly makes a false or misleading statement in a prospectus may face which consequence?

  1. Only a written warning from the exchange
  2. Automatic delisting of the issuer
  3. Suspension of the auditor's practising certificate
  4. Civil and criminal liability, including fines and imprisonment Correct answer.

Explanation

The CMSA imposes both civil liability and criminal penalties for false or misleading statements in disclosure documents such as prospectuses, reflecting the importance of accurate disclosure to investors. Sanctions can include fines, imprisonment and compensation orders.

Question 31Law & Regulation

Which principle best describes the fiduciary duty an investment adviser owes to a client under Malaysian capital market rules?

  1. To act in the client's best interest and put the client's interest ahead of the adviser's own Correct answer.
  2. To recommend the products with the highest fees
  3. To maximise the adviser's commission income
  4. To follow only the client's instructions without any advice

Explanation

An investment adviser stands in a fiduciary relationship with the client and must act in the client's best interest, avoiding conflicts and prioritising the client's objectives. Commission maximisation or fee-driven recommendations would breach this duty.

Question 32Law & Regulation

What is the primary purpose of the know-your-client (KYC) requirement in the capital market?

  1. To avoid the need for client agreements
  2. To identify and verify clients and understand their risk profiles and source of funds Correct answer.
  3. To reduce the firm's tax obligations
  4. To increase the firm's marketing reach

Explanation

KYC requires firms to identify and verify the identity of clients, understand their investment objectives, risk tolerance and source of funds, supporting both suitability assessment and anti-money-laundering controls. It is a risk-management and integrity measure, not a marketing or tax tool.

Question 33Law & Regulation

Which of the following is a recognised objective of the Securities Commission's investor protection mandate?

  1. Determining the share prices of listed companies
  2. Setting the interest rates charged by banks
  3. Ensuring fair and orderly markets and protecting investors from misconduct Correct answer.
  4. Guaranteeing that all investments will be profitable

Explanation

Investor protection under the SC's mandate focuses on fair, orderly and transparent markets, requiring proper disclosure and deterring misconduct. It does not extend to guaranteeing returns or setting prices, which are market-determined.

Question 34Law & Regulation

A licensed dealer wishes to change its controlling shareholder. What is the appropriate regulatory step under the CMSA?

  1. Proceed without notification because ownership changes are private matters
  2. Notify the exchange only after completion
  3. Seek the Securities Commission's approval before the change takes effect Correct answer.
  4. Obtain approval from the Companies Commission

Explanation

Changes in control of a licensed capital market intermediary require prior approval from the Securities Commission, because the fitness and propriety of controllers affects the licensee's ability to operate soundly. Post-completion notification or silence would breach the approval requirement.

Question 35Law & Regulation

An issuer plans to announce a major acquisition. A director tells a close friend to buy shares before the announcement. Which offence is most directly engaged?

  1. Insider dealing Correct answer.
  2. Front-running a client order
  3. Misappropriation of client assets
  4. Market manipulation

Explanation

Communicating unpublished price-sensitive information to another person who then trades, or trading on it oneself, constitutes insider dealing under the CMSA. The director has tipped material non-public information, and the friend's trade exploits that information advantage.

Question 36Law & Regulation

A fund manager allocates a profitable IPO allocation to a personal account before allocating to client accounts. Which regulatory breach is most directly implicated?

  1. Breach of capital adequacy requirements
  2. Breach of the listing requirements of the exchange
  3. Breach of tax reporting obligations
  4. Breach of the duty to avoid conflicts of interest and act in clients' best interest Correct answer.

Explanation

Preferential allocation to a personal account ahead of clients is a conflict of interest that breaches the duty to prioritise client interests and to manage personal account dealing. Capital adequacy, listing rules and tax reporting address different obligations.

Question 37Law & Regulation

A firm's client agreement contains a clause allowing the firm to use client securities for its own purposes without client consent. How should this be treated under client asset rules?

  1. It is acceptable because the client signed the agreement
  2. It is acceptable only if the firm makes a profit
  3. It is acceptable if the firm records the transaction in its accounts
  4. It is generally impermissible because client assets must be safeguarded and not used without proper authorisation Correct answer.

Explanation

Client asset rules require firms to safeguard client securities and money, and using client assets for the firm's own purposes without proper legal authorisation is prohibited. A contractual clause cannot override the statutory protection of client assets.

Question 38Law & Regulation

An issuer's audit committee discovers a material related-party transaction that was not disclosed. What is the most appropriate regulatory response?

  1. Resign from the audit committee to avoid liability
  2. Disclose the transaction promptly and assess whether listing requirements were breached Correct answer.
  3. Conceal the transaction until year-end
  4. Wait for the regulator to discover it

Explanation

Material related-party transactions must be disclosed under listing requirements and the CMSA, and the issuer should promptly inform the market and assess the breach. Concealment or resignation does not discharge the disclosure obligation and may aggravate liability.

Question 39Law & Regulation

A licensed intermediary receives a court order freezing a client's account in connection with a criminal investigation. What should the firm do?

  1. Notify the client and allow withdrawal before complying
  2. Comply with the order and preserve relevant records Correct answer.
  3. Transfer the assets to another account to protect the client
  4. Ignore the order because the client is a long-standing customer

Explanation

A court order must be complied with, and the firm should preserve records and cooperate with authorities. Facilitating transfers or tipping off the client to allow withdrawal would obstruct the order and may breach anti-money-laundering obligations.

Question 40Law & Regulation

Under the CMSA, which conduct constitutes creating a false or misleading appearance of active trading in securities?

  1. Entering matched orders with a related party to generate apparent volume Correct answer.
  2. Publishing a research report with a sell recommendation
  3. Reducing a position because of a change in investment strategy
  4. Executing a genuine client order at the best available price

Explanation

Wash trades or matched orders between related parties that generate apparent trading volume without a genuine change in beneficial ownership create a false or misleading appearance of active trading, which is market manipulation. Legitimate research, client execution and genuine position changes are not manipulation.

Question 41Law & Regulation

A firm's board approves a new product without documenting the target market or the risks to retail clients. Which regulatory expectation is most directly unmet?

  1. Capital adequacy reporting
  2. Custodian appointment
  3. Product governance and suitability assessment before launch Correct answer.
  4. Trade reporting to the exchange

Explanation

Product governance requires firms to define the target market, assess risks and ensure products are suitable before launch. Omitting this documentation means the firm has not met its product approval and suitability obligations.

Question 42Law & Regulation

A firm's representative gives a client a personal guarantee of capital protection on a unit trust investment without the firm's authorisation. What is the primary regulatory concern?

  1. The representative has complied with marketing rules
  2. The guarantee is valid because it was verbal
  3. The firm must honour the guarantee as a matter of securities law
  4. The representative has made an unauthorised representation that may mislead the client and breach conduct rules Correct answer.

Explanation

Representatives must not make unauthorised promises or misleading representations about investment products; a personal guarantee of capital protection misleads the client about risk and breaches conduct and marketing rules. Verbal form does not make it compliant.

Question 43Law & Regulation

A licensed intermediary is subject to a periodic regulatory inspection. What is the firm's principal obligation during the inspection?

  1. Provide only documents that support the firm's position
  2. Delay the inspection until the next financial year
  3. Provide full cooperation, access to records and accurate information Correct answer.
  4. Limit access to documents to protect commercial confidentiality

Explanation

Firms must cooperate fully with regulatory inspections, providing access to records, systems and personnel and giving accurate information. Selective disclosure or obstruction can itself be a breach of regulatory obligations.

Question 44Law & Regulation

A fund manager discovers that a dealer has been allocating profitable trades to certain clients and loss-making trades to others without a disclosed allocation policy. Which regulatory principle is most directly breached?

  1. Tax neutrality
  2. Capital adequacy
  3. Fair treatment of clients and fair allocation of trades Correct answer.
  4. Listing requirements

Explanation

Firms must treat clients fairly and apply a disclosed, non-discriminatory trade allocation policy; systematically favouring some clients breaches this principle and the duty of fair dealing. Capital adequacy, listing rules and tax neutrality address unrelated matters.

Question 45Law & Regulation

A firm uses a client's money to pay its own operating expenses and repays the amount a week later. How should this be characterised under client money rules?

  1. A breach of client money segregation and trust obligations Correct answer.
  2. Permissible if the client is informed afterwards
  3. Permissible because the amount was small
  4. Permissible because the money was repaid

Explanation

Client money must be segregated and held on trust; using it for the firm's own expenses, even temporarily and even if repaid, breaches segregation and trust obligations. Repayment does not cure the breach.

Question 46Law & Regulation

An issuer discloses material information to a small group of institutional investors before a public announcement. Which regulatory principle is most directly engaged?

  1. Capital adequacy of the issuer
  2. Trade reporting
  3. Custody of client assets
  4. Equal access to information and timely public disclosure Correct answer.

Explanation

Material information must be disclosed to the market as a whole in a timely manner so that investors have equal access; selective disclosure to favoured investors undermines market fairness and may constitute insider dealing or a disclosure breach. The other principles concern unrelated obligations.

Question 47Law & Regulation

A foreign fund manager solicits Malaysian retail investors without holding a CMSL and without relying on any available exemption. What is the most significant regulatory exposure?

  1. A minor administrative fee
  2. No exposure because the firm is foreign
  3. Carrying on a regulated activity without a licence, exposing the firm to enforcement action Correct answer.
  4. Exposure only if a client complains

Explanation

Soliciting and dealing with Malaysian investors constitutes carrying on a regulated activity in Malaysia, which requires a CMSL or a valid exemption; doing so without authorisation exposes the firm to enforcement action, including fines and orders to cease business. Foreign status or the absence of complaints does not remove the exposure.

Question 48Law & Regulation

A firm's remuneration policy pays advisers solely on sales volume, and advisers are pressured to churn client accounts. Which regulatory concern is most directly raised?

  1. Inadequate custody arrangements
  2. Insufficient capital reserves
  3. Failure to report trades to the exchange
  4. Incentive-driven misconduct and breach of the duty to act in clients' best interest Correct answer.

Explanation

Remuneration structures that reward volume without regard to client outcomes create incentives for churning and unsuitable recommendations, breaching the duty to act in clients' best interest and conflict-management expectations. Capital, trade reporting and custody concern different obligations.

Question 49Law & Regulation

A firm identifies a suspicious transaction that may involve proceeds of crime. Under anti-money-laundering obligations, what is the firm's primary course of action?

  1. Confront the client directly and demand an explanation
  2. Report the suspicion to the relevant authority and refrain from tipping off the client Correct answer.
  3. Continue the transaction and monitor the account
  4. Close the account immediately without reporting

Explanation

Suspicious transaction reporting requires the firm to report its suspicion to the competent authority and to avoid tipping off the client, which could prejudice any investigation. Confronting the client or silently closing the account would undermine the reporting regime.

Question 50Law & Regulation

A licensed fund management company in Malaysia wants to appoint a new chief executive officer who will also be a responsible person for its capital markets services. Under the Capital Markets and Services Act 2007 framework, which step must the firm take before the appointment takes effect?

  1. Notify the Securities Commission in writing within fourteen days after the appointment has been made and the person has assumed duties
  2. Rely on the person's prior approval at another licensed intermediary, since approval attaches to the individual and transfers automatically
  3. Submit an application to the Securities Commission for approval of the person's appointment and await the Commission's decision before the person assumes the role Correct answer.
  4. Obtain approval from Bursa Malaysia as the frontline regulator for listed issuers, then file the approval with the Securities Commission

Explanation

Under the CMSA licensing regime, a holder of a capital markets services licence must obtain the Securities Commission's prior approval before appointing a chief executive officer or any person who is to be a responsible person for the licensed activities. Approval is person- and role-specific, so the firm cannot let the individual start work and regularise later, and prior approval at another firm does not carry over automatically.