Introduction
Many times, we know of instances where individuals fall victim to investment scams. This scene is all too common, particularly during these times where people are looking out for passive income to sustain their livelihood and secure their financial future. The promise of easy money and high returns often makes people overlook the risks in overly attractive investment opportunities.
In Malaysia, interest schemes are governed by the Companies Commission of Malaysia (CCM) under Interest Schemes Act 2016 (“ISA 2016”). Previously it was governed under the Companies Act 1965. An interest scheme is a business involving pooling of money from the public in exchange for an interest (usually in the form of profit or returns) in the business. It is a way for a company to raise funds for its business.
Legal perspective on Interest Scheme
An interest scheme offered by a company must be registered with CCM, pursuant to the ISA 2016. Under Section 72 of the ISA 2016, it provides that the CCM has the power to terminate an unregistered scheme and may give directions to the company or any individual as it thinks fit in respect of the unregistered scheme. Every interest scheme is regulated by ISA 2016, the Interest Schemes Regulations 2017 as well as other Policy Guidelines and Requirements issued by the CCM.
According to Section 22 and 23 of the ISA 2016, a trustee must be appointed by the company (also known as the ‘management company’ in the ISA 2016) through a trust deed to act for the investors (also known as the ‘interest holders’ under the ISA 2016). This is to safeguard the money invested by the investors. The said trustee must be a trust company which is registered with CCM. Further, the said trustee shall, among others, exercise all due diligence and vigilance in carrying out its functions and duties under the trust deeds and ensure its compliance, carry out of its duties in a timely manner and report to Registrar for any non-compliance, failure to meet its obligations or the business of the company is carried out in a manner that is likely to be prejudicial to the investors. The functions and duties of the trustee shall be ventilated in the trust deed comprehensively, pursuant to First Schedule of the ISA 2016.
In addition, according to Section 28 to 32 of the ISA 2016, a prospectus must be made pursuant to the Second Schedule of the ISA 2016 and must be registered and lodged the same with CCM before it is issued out to the prospective investors. Under the prospectus, it clearly lays out, among others, the details of the scheme offered, the rights and obligations of the investors, and the risks involved.
Important things to note
While an interest scheme may offer attractive returns, it is vital to remember that such schemes, especially those that seem ‘too good to be true,’ come with their own set of risks. It is crucial for every prospective investor to understand the specific regulations governing interest schemes. In Malaysia, the ISA 2016, Interest Schemes Regulations 2017, as well as other Policy Guidelines and Requirements, are designed to protect investors and ensure transparency and fairness in the management of these schemes.
As such, as a prospective investor, you must thoroughly read the prospectus and trust deeds lodged with CCM, familiarise yourself with the relevant laws, and review all other information related to the specific interest schemes. It is recommended and advisable to check with CCM whether the said interest scheme is duly registered and to verify whether the scheme/company is authorised. You can check this at the following link: https://www.ssm.com.my/lists/list%20of%20updated%20registered%20scheme/allitems.aspx OR https://www.sc.com.my/investor-alert-list.
Disclaimer: This article is for informational purposes only and does not constitute any legal advice. If you have any questions or require further information on this matter, please do not hesitate to contact us directly.