Governance and Audit Oversight for Capital Market
Governance and Audit
Oversight for Capital
Market
Nik Mohd Hasyudeen Yusoff
October 2018
•
Regulatory ecosystem and institutional arrangements
•
Market and corporate supervision
•
Audit oversight
•
Key ingredients for effective supervision
•
Summary of thoughts
A
g
e
n
d
a
Possible institutional arrangements in capital market
Primary regulator
R
e
g
u
l
a
t
o
r
y
-
d
i
s
c
i
p
l
i
n
e
Public listed
companies
S
e
l
f
-
d
i
s
c
i
p
l
i
n
e
Stock exchange
M
a
r
k
e
t
-
d
i
s
c
i
p
l
i
n
e
Other regulators
O
t
h
e
r
r
e
l
e
v
a
n
t
l
a
w
s
D
o
m
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C
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l
a
b
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r
a
t
i
o
n
i
s
k
e
y
Public listed
company
Trading of shares
and other
securities
Governance and
conduct
Related party
transactions
Corporate
transactions
Financial reporting
and audit
Market abuse
Insider trading
M
a
r
k
e
t
S
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p
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r
v
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A
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O
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a
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Possible supervision arrangements
I
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e
s
t
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g
a
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o
n
t
e
a
m
P
r
o
s
e
c
u
t
i
o
n
t
e
a
m
Company
Third party 1
Money gets transferred back to
into the director’s or management’s account
Director/Manage
ment
General Modus Operandi of corporate fraud:
Merry Go Round
Third party 2
Third party 3
Induces
Enters into transactions with a third party controlled/friendly
to the director or management, normally cash is paid upfront
for benefits which may be received way later in the future. In many cases
the assets involved did not exist or the prices were inflated.
Money gets
transferred
to series of
other entities
within or
outside the
country
M
a
l
a
y
s
i
a
n
C
o
d
e
o
n
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
Principles:
Board leadership and
effectiveness
Effective audit and risk
management
Integrity in corporate
reporting and
meaningful relationship
with stakeholders
P
r
a
c
t
i
c
e
s
S
t
e
p
-
u
p
P
r
a
c
t
i
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A
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P
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I
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d
O
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c
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m
e
s
Practised with CARE: Comprehand, Apply and REport
S
e
c
t
i
o
n
3
1
L
o
f
t
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e
S
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C
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m
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A
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q
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A
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B
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f
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c
t
i
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s
s
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d
i
s
c
h
a
r
g
i
n
g
i
t
s
d
u
t
i
e
s
•
Policy - Setting of regulatory expectations which are clear
and implementable by market players and regulators.
•
Plan - the approach adopted in supervision based on the
realities of the market, with clear regulatory outcomes in
mind, including internal structure and arrangements within
the regulatory authority
•
People - must have technical abilities and skills
corresponding to the complexities of markets and their job
functions, professional values and courage to act in fair
and equitable manner command market respect
K
e
y
i
n
g
r
e
d
i
e
n
t
s
f
o
r
e
f
f
e
c
t
i
v
e
s
u
p
e
r
v
i
s
i
o
n
•
Platform - supervisory activities must be supported by
appropriate tools including relevant technological systems
to ensure relevant and timely data and information are
available for timely intervention and decision making
•
Performance assessment - should enable fair assessment
of the impact of supervisory activities on market behaviour
and investors protection, resulting in higher trust and
confidence
K
e
y
i
n
g
r
e
d
i
e
n
t
s
f
o
r
e
f
f
e
c
t
i
v
e
s
u
p
e
r
v
i
s
i
o
n
•
Regulatory ecosystem and institutional arrangements are
key to effective supervision, taking into consideration market
realities, level of collaboration and cross border needs
•
Market and corporate supervision are focused on the
conduct of listed companies and how their securities are
traded to instil confidence and protecting investors
•
Audit oversight ensures the reliability of audited financial
statements which are used in investment decisions, quality is
influenced by diverse stakeholders
•
Policy, Plan, People, Platform and Performance assessment
are key ingredients in supervisory effectiveness
S
u
m
m
a
r
y
o
f
t
h
o
u
g
h
t
s
This presentation discusses the regulatory ecosystem, market and corporate supervision, audit oversight, and key ingredients for effective supervision in the capital market. It emphasizes the importance of clear institutional arrangements, collaboration among regulators, and various supervision arrangements to combat corporate fraud effectively.
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Presentation Transcript
Governance and Audit Oversight for Capital Market Nik Mohd Hasyudeen Yusoff October 2018
Agenda Regulatory ecosystem and institutional arrangements Market and corporate supervision Audit oversight Key ingredients for effective supervision Summary of thoughts
Possible institutional arrangements in capital market Clear institutional arrangements, roles and expectations are important Primary regulator Collaboration is key Regulatory-discipline Stock exchange Other regulators Market-discipline Other relevant laws Domestic or cross border Public listed companies Self-discipline
Possible supervision arrangements Insider trading Market Supervision team Trading of shares and other securities Market abuse Investigation team Public listed company Prosecution team Corporate transactions Corporate Supervision team Governance and conduct Related party transactions Audit Oversight team Financial reporting and audit
General Modus Operandi of corporate fraud: Merry Go Round Money gets transferred back to into the director s or management s account Third party 3 Money gets transferred to series of other entities within or outside the country Director/Manage ment Third party 2 Induces Third party 1 Company Enters into transactions with a third party controlled/friendly to the director or management, normally cash is paid upfront for benefits which may be received way later in the future. In many cases the assets involved did not exist or the prices were inflated.
Malaysian Code on Corporate Governance Principles: Practices Board leadership and effectiveness Intended Outcomes Effective audit and risk management Alternative Practices Integrity in corporate reporting and meaningful relationship with stakeholders Step-up Practices Practised with CARE: Comprehand, Apply and REport
Section 31L of the Securities Commission Act requires the Audit Oversight Board to prepare a report on its activities and provide the assessment of its performance and effectiveness in discharging its duties
Key ingredients for effective supervision Policy - Setting of regulatory expectations which are clear and implementable by market players and regulators. Plan - the approach adopted in supervision based on the realities of the market, with clear regulatory outcomes in mind, including internal structure and arrangements within the regulatory authority People - must have technical abilities and skills corresponding to the complexities of markets and their job functions, professional values and courage to act in fair and equitable manner command market respect
Key ingredients for effective supervision Platform - supervisory activities must be supported by appropriate tools including relevant technological systems to ensure relevant and timely data and information are available for timely intervention and decision making Performance assessment - should enable fair assessment of the impact of supervisory activities on market behaviour and investors protection, resulting in higher trust and confidence
Summary of thoughts Regulatory ecosystem and institutional arrangements are key to effective supervision, taking into consideration market realities, level of collaboration and cross border needs Market and corporate supervision are focused on the conduct of listed companies and how their securities are traded to instil confidence and protecting investors Audit oversight ensures the reliability of audited financial statements which are used in investment decisions, quality is influenced by diverse stakeholders Policy, Plan, People, Platform and Performance assessment are key ingredients in supervisory effectiveness
