Tutorial Week 3 MFA3053

Group Members (KME3)

1. Syaza Nur Anati Binti Abd Khalik (1180800)

2. Nur Anis Insyirah Binti Abu Bakar (1180803)
3. Siti Najihah Binti Shamsulbahari (1180798)
4. Noraisyaamira Binti Mohd Madzlan (1180796)
5. Syazana Athirah Binti Mohd Sazeri (1180806)

Question 1: Explain in general 4 elements needed in regulatory framework.

A. Bodies that are empowered to administer laws and regulations.

 Bodies that are allowed to regulated rules and regulations covering the Islamic
Capital Market are the securities commissions and Bursa Malaysia. The Securities
Commission is an administrative body appointed to oversee the Malaysian stock
market, which includes the Islamic capital market, under the Securities
Commission Malaysia Act 1993 (SCMA). Furthermore, it is solely responsible for
the enforcement, control, and oversight of all entities approved under the CMSA,
with the primary goal of safeguarding investors. Under the CMSA, it is also in
charge of facilitating and fostering the growth of Malaysia's stock and derivatives
markets, as well as controlling and supervising publicly traded firms to ensure
compliance with securities laws.

B. Applicable laws and regulations

There are a few regulations that have been used in Malaysia in the context of
Islamic Capital Market which is:

 Capital Markets and Services Act 2007

 Securities Industry (Central Depositories Act) 1991
 Securities Commission Act 1993
 Companies Act 1965
 Offshore Companies Act 1990
 Labuan Financial Services and Securities Act 2010
 C. Persons
 There is a person who are subjected to the laws and regulations which is the investors
in the Islamic Capital Market. Those investors who are buying sukuk or product in the
Malaysia Islamic Capital Market are obligated to follow all the rules and regulation
that have been stated by the law. Moreover, the investor in Islamic Capital Market is
giving protection through corporate governance and compliance issues.

D. The tribunals vested with the authority to rule and/or to adjudicate on issues and
disputes relating to the matter.
 The Federal Court's decision is likely to represent the status of a related comparison
process under Malaysia's Capital Markets and Services Act 2007 for any Islamic
capital market company or transaction. The Federal Court's ruling, which considers
the applicability of Sections 56 to 58 of the Act to arbitrators, poses a host of
questions that are applicable to arbitrations involving Islamic Capital Market in
Malaysia.

Question 2: Describe functions of law vs regulations/bylaws.

 Basically, laws can be defined as laws made based on wrongdoing and debate
between two parties. It has a writing on the punishment that needs to be carried out
when an offense occurs. While regulation can be defined as rules that are
implemented and the debate is not made in the assembly or court. This is because the
decision made to use or reject the regulation is based on what has been analyzed and
discussed by the government agency. Laws are rules to govern everyone equally, but
regulations only involve the parties involved. Laws function as to keep the country
safe, form good morals, provide a basis for compromise and so on. Regulations serve
to protect the public interest, establish technical and safety standards as well as
quantities and monitor their compliance.

Question 3: Explain functions of statutory bodies, exchange authorities, and self-

regulatory bodies in the ICM context.
Statutory Bodies:

The setting up of a statutory body is governed by laws. Statutory bodies are established with
the objective of implementing certain duties and responsibilities in line with government
objectives. They act as public regulatory bodies carrying out regulatory and enforcement
functions of the government. Examples of statutory bodies are Bank Negara Malaysia,
Malaysian Industrial Development Authority (MIDA), Securities Commission, Malaysian
Communications and Multimedia Commission (MCMC) and Companies Commission of
Malaysia.

1. Bank Negara Malaysia:

Function: Investment and Operations
Manage domestic liquidity and exchange rates to ensure that monetary policy targets
are achieved as well as managing external reserves to safeguard its value and optimise
its returns. It also has the responsibility of providing advice and assistance to the
Government in the area of debt and fund management and contributing to domestic
financial market development.

2. Ministry of Finance
Function: To ensure the government & country's financial stability and provide
policies and guidelines for the stimulation development of the country's economic
growth.

3. Securities Commission Malaysia (Sc Malaysia)

Function: SC act as to enforce the regulations pertaining to the capital market,
ensuring sustainable market growth and development, supervising capital market
activities and market institutions including the exchanges, registered market
operators.

4. Labuan Financial Services Authority (Labuan FSA)

Function: FSA helps in managing and regulating the international business and
financial centre and undertakes economy research and development.

5. Inland Revenue Board (IRB)

 Function: To act as agent of the Government and to provide services in administering,
assessing, collecting and enforcing payment of income tax, petroleum income tax, real
property gains tax, estate duty, stamp duties and such other taxes as may be agreed
between the Government and the Board,

Exchange authorities:

1. Bursa Malaysia: The function of Bursa Malaysia in Islamic capital market is to offer
the securities according to shariah compliant. It also including range of exchange
relted facilities including listing, trading, clearing, settlement and depository services,
levering on the existing infrastructure with shariah compliant features. There has
Islamic brokers listed in Bursa Malaysia for the investors either directly or online. On
the other hand, Bursa Malaysia also provide and ensure all the investment and trading
are based on shariah requirements without any doubt.
2. Labuan Financial Exchange (LFX): Owned by Bursa Malaysia and offer the
financial exchange of the financial and non-financial product as well as Islamic
product. They come out with services from the submission for listing to approval, the
actual listing, trading, and settlement of the securities.

Self-Regulatory:

1. Federation of Investment Managers Malaysia (FIMM): As a regulation industry

that support and the growth of the Unit Trust Scheme (UTS) and Private Retirement
Scheme (PRS). Besides that, they also to increase the professional standards of UTS
consultants and PRS consultants to protect the needs and interest same as the public
confidence.
2. Association of Islamic Banking Institutions Malaysia (AIBIM): The function is to
promote the development of Islamic banking system and practices and provide
guideline and advice that deems necessary and useful to the members. On the other
hand, they are also offering education and training in Islamic banking to enhance the
Islamic banking expertise.
3. Malaysian Investment Banking Association (MIBA): Function as an association
that facilitate and promote the development of Islamic capital markets, guidance for
the members about the current developments and emerging of Islamic finance issue.
 Moreover, as a connection to the authority agency in all Islamic capital market such
as information sharing and clarification of rules and law.

Question 4: Bring examples of rules and regulations on.

A. Sukuk issuance
- A sukuk was a 100 million security used to finance the construction and delivery
of cooling plants in Abu Dhabi. This Sukuk had a istisna’ and ijara structures and
was issued by Tabreed Financing Corporation (National Central Cooling
Company) in March 2004. The Tabreed company created an SPV which sold
certificates of sukuk bonds. With the proceeds of this sale, it bought some
partially competed central cooling plants. The SPV leased the trust assets to the
Tabreed which made rental payments to the SPV and passed the payments on the
sukuk holders. When the Sukuk matured, the trust assets are bought back from the
SPV and the sukuk holders got their principal back.

B. Unit Trust Offering

- Unit Trust pools money and invest in shares, bonds, money market instruments
and other investment. The poo is then divided into equal portions called units. An
example of unit trust offering by Bank Islam that are distributes a wide range of
unit trust funds that caters for a variety of investment objectives, investment,
strategies, and risk tolerance level such as equity fund, balance fund, mixed assets
funds, sukuk fund, income fund and money market fund.

C. Share Issuance
- Issued share are the portion of the total authorized share of the company that are
held by any type of shareholders, including management, public, or any other type
of investor. Such an example, a company issues 10 million shares out of 20
million authorized shares of an owner and the owner’s shares are the only ones
issued the owner has 100% of the corporation.