KUALA LUMPUR (March 25): The Securities Commission (SC) said it has begun to investigate unlisted companies and entities offering cash trust products and flagged concerns of potential violations of capital market laws.

The SC has observed “certain possible adverse conduct” by unlisted companies that typically offer preference shares and entities offering cash trust products, the regulator said in its Annual Report 2023 released on Monday. A review suggests possible breaches of the laws, including offering shares without registering a prospectus with the SC, it noted.

“Several investigations have been initiated,” the SC said, including possible breaches of section 58 on capital market services license, section 232 on requirement to register prospectus and section 179 on potential use of “manipulative and deceptive devices.”

Cash trusts are typically designed to provide investors with a lower-risk investment option for liquidity purposes. However, cash trusts are not regulated by the SC or Bank Negara Malaysia.

The Association of Trust Companies Malaysia, Life Insurance Association of Malaysia, Malaysian Financial Planning Council and the Financial Planning Association of Malaysia, among others, have previously complained about certain cash trusts.

These cash trusts and other outfits with similar modus operandi promise extremely high returns, reminiscent of Ponzi schemes, with some said to offer returns of as high as 36% per annum.

“The SC is also concurrently reviewing its current regulatory framework to consider introducing the requirement for assessment and due diligence to address any gaps that is detrimental and harmful to the investors,” it added.

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