Interest Schemes Act & Guidelines in Malaysia
- Roger Pay
- Jun 17
- 11 min read
Malaysian Interest Schemes Act Explained
The Interest Schemes Act 2016 (Act 778) is the primary legislation governing interest schemes in Malaysia. It came into force on January 31, 2017, alongside the Companies Act 2016. This Act replaced the previous provisions found in Division 5 of the repealed Companies Act 1965, providing a more comprehensive and modernized regulatory framework for investor protection and the administration of interest schemes.
Regulatory Body:
The Companies Commission of Malaysia (SSM) (Suruhanjaya Syarikat Malaysia) is the statutory body responsible for regulating and enforcing the Interest Schemes Act 2016. SSM is the primary authority for incorporating companies and registering businesses in Malaysia, and it also handles monitoring and enforcement activities to ensure compliance with corporate and business legislation.
Key Provisions of the Interest Schemes Act 2016:
The Act aims to provide stronger protection for investors and wider regulatory powers for the SSM. Here are some of its key aspects:
Definition of "Interest": The Act clearly defines "interest" as any interest or right to participate, whether enforceable or not, and whether actual, prospective or contingent, in:
Any investment scheme
Any time-sharing scheme
Any recreational membership scheme
Or a combination of such schemes.
Classification of Schemes: The Act introduced three main classifications:
Premium Scheme: For larger fund sizes.
Small Scheme: For smaller fund sizes.
Foreign Scheme: For schemes offered by a management company on behalf of a foreign company.
Registration Requirements: Companies proposing to issue interest schemes must register them with the SSM. This involves a meticulous process including:
Preparing a Prelodgment Form and paying fees.
Drafting a Trust Deed or Contractual Agreement that outlines terms, conditions, rights, and obligations.
Creating a Prospectus or Product Disclosure Statement providing detailed information, objectives, risks, and financial projections.
Obtaining approval and official registration from SSM.
Roles and Responsibilities:
Management Company: Responsible for managing the assets and funds of the scheme. They are subject to general duties and obligations, including maintaining a registered office and a separate trust account controlled by trustees. They must also pass a "profit test" and have a good track record.
Trustee: An independent trustee is appointed by the management company to act on behalf of the interest holders. The Act outlines their powers and duties, including reporting any non-compliance or irregularities to the Registrar (SSM).
Auditor: Has duties to report on financial statements and accounting records, and to report to the Registrar if any non-observance of the Act is discovered.
Investor Protection: The Act includes provisions for:
Stronger safeguards for investors' money, including the requirement for separate trust accounts.
Increased transparency through detailed prospectuses.
SSM's power to intervene, suspend, or terminate schemes in cases of non-compliance or to protect investor interests.
Enforcement mechanisms, such as the ability for courts to grant injunctions.
Flexibility in Fundraising: The Act allows small and medium enterprises (SMEs) and private limited companies to raise funds by pooling investors' money, providing an alternative to traditional financing methods.
Guidelines under the Interest Schemes Act 2016:
The SSM issues various guidelines, practice directives, and forms to further elaborate on the requirements and procedures under the Interest Schemes Act 2016 and the Interest Schemes Regulations 2017. These guidelines cover aspects such as:
Application for Registration: Detailed instructions on submitting applications for new schemes.
Trust Deeds and Prospectuses: Requirements for their content and validity periods.
Duties of Management Companies and Trustees: Specific obligations and responsibilities.
Financial Reporting and Audit: Requirements for accounting records, audits, and annual returns.
Meetings of Interest Holders: Procedures for requisitioning and conducting meetings.
Returns by Management Company: Forms and procedures for lodging returns with the Registrar.
You can typically find the official text of the Act, Regulations, and related Practice Directives and forms on the official website of the Companies Commission of Malaysia (SSM).
General Guidelines for Application for Registration of New Interest Schemes
The Companies Commission of Malaysia (SSM) provides detailed instructions and guidelines for the application and registration of new interest schemes under the Interest Schemes Act 2016 (ISA 2016) and the Interest Schemes Regulations 2017.
The application process typically involves several key stages and the submission of various documents, demonstrating compliance with the quantitative and qualitative requirements set by SSM.
1. Preliminary Assessment and Planning:
Understand the Definition of "Interest Scheme": Ensure your proposed scheme falls within the definition of "interest" under Section 2(1) of the ISA 2016 (investment scheme, time-sharing scheme, recreational membership scheme, or a combination thereof).
Determine Scheme Classification: Identify whether your scheme is a "Premium Scheme," "Small Scheme," or "Foreign Scheme" as this dictates minimum paid-up capital, fund size, and other specific requirements.
Small Scheme: Minimum paid-up capital of RM500,000, fund size between RM1 million and RM10 million.
Premium Scheme: Minimum paid-up capital of RM1 million (for fund size above RM10M to RM50M) or RM2 million (for fund size above RM50M to RM100M) or RM5 million (for fund size above RM100M).
Foreign Scheme: Minimum paid-up capital of RM5 million, any amount of fund size.
Company Eligibility: The management company must be a public company limited by shares under the Companies Act 2016. Its constitution must specify that the management of an interest scheme is one of its main objects.
Financial Track Record: The management company must generally show uninterrupted profit after tax (PAT) for a minimum of 4 years preceding the application date, based on audited financial statements.
Management Team & Governance: The management company must appoint a qualified Chief Executive Officer (CEO), and comply with governance structures, including maintaining proper records.
Trustee Appointment: Identify and appoint a qualified and independent trustee to oversee the scheme's assets and protect interest holders' interests.
2. Preparation of Key Documents:
These are the core documents that form the bulk of your application:
Prelodgement Form (Form T12): This is the initial application form that provides SSM with an overview of your proposed scheme. It typically includes details about the management company, the scheme's nature, proposed fund size, and other essential information.
Checklist: SSM provides a specific checklist for the registration of new schemes. This is crucial to ensure all required documents and information are submitted.
Draft Trust Deed or Contractual Agreement: This legally binding document outlines the terms and conditions of the scheme. It must detail:
The rights and obligations of the management company and interest holders.
The appointment, powers, duties, and responsibilities of the trustee.
Mechanisms for profit distribution or benefit sharing.
Procedures for meetings of interest holders.
Provisions for winding-up or termination of the scheme.
Specific details pertaining to the nature of the scheme (e.g., how the investment works, how time-sharing is allocated, recreational membership rules).
Draft Prospectus or Product Disclosure Statement (PDS): This document is the primary information source for potential investors. It must be clear, accurate, and comprehensive, including:
Scheme Objectives: Clear goals of the scheme.
Nature of the Interest: What the interest holder is acquiring (e.g., units, rights to use facilities).
Risk Factors: A detailed outline of all potential risks associated with the scheme.
Financial Projections: Realistic projections of returns or benefits.
Management Company Information: Details about the management company, its directors, and key personnel.
Trustee Information: Details about the appointed trustee.
Accountant's Report: For investment schemes, a report on the financial viability.
Independent Consultant's Report: For certain prescribed schemes, a report by an independent expert on the feasibility and progress of the underlying enterprise.
Fund Flow: How funds collected from interest holders will be managed and utilized.
Terms and Conditions of Subscription: How to subscribe to the scheme.
Fees and Charges: All fees payable by interest holders.
Maturity/Duration of the Scheme: The expected lifespan of the scheme.
3. Submission to SSM:
Online/Manual Submission: While many SSM services are moving online, specific instructions for interest schemes should be checked. Applications typically involve submitting the Prelodgement Form, checklist, and all draft documents (Trust Deed, Prospectus/PDS) to SSM.
Payment of Fees: Pay the prescribed application and processing fees, which vary based on the scheme's category and fund size.
4. SSM Review and Approval Process:
Detailed Review: SSM will conduct a thorough review of all submitted documents to ensure compliance with the ISA 2016, its Regulations, and relevant guidelines.
Request for Further Information/Clarifications: It is common for SSM to request additional information, clarifications, or amendments to the submitted documents during the review period. Be prepared to respond promptly and provide any requested details.
Ministerial Approval (if applicable): Depending on the nature or scale of the scheme, ministerial approval might also be required.
Approval-in-Principle: If satisfied, SSM may issue an approval-in-principle.
5. Registration and Issuance of Certificate:
Final Lodgement: Once all conditions are met and final approval is granted, the management company will proceed with the official registration of the scheme. This may involve lodging final versions of the Trust Deed and Prospectus/PDS.
Issuance of Certificate of Authorisation/Registration: Upon successful registration, SSM will issue a Certificate of Authorisation (or similar document), officially permitting the company to offer interests to the public.
Key Considerations and Best Practices:
Professional Advice: It is highly recommended to engage legal professionals (lawyers specializing in corporate and financial law) and financial consultants who have expertise in interest schemes to assist with the application process. Their expertise will be invaluable in drafting complex legal documents and ensuring compliance.
Compliance is Paramount: The ISA 2016 places a strong emphasis on investor protection. Therefore, strict adherence to all provisions of the Act, Regulations, and SSM's guidelines is crucial. Any non-compliance can lead to severe penalties, including refusal of registration, suspension, or termination of the scheme.
Transparency and Disclosure: The spirit of the Act is to ensure full transparency and adequate disclosure to potential interest holders. The prospectus/PDS should be clear, concise, and easy to understand for the general public, avoiding misleading statements.
Ongoing Compliance: Registration is not a one-time event. Management companies must ensure ongoing compliance with the Act, including regular lodgement of returns, audited financial statements, and any changes to the scheme or management company.
To get the most precise and current application forms, checklists, and guidelines, always visit the official Companies Commission of Malaysia (SSM) website and navigate to the "Interest Schemes" section under "Register a Business / Company / LLP / IS." Look for documents like "Guide to Registration of New Scheme" and "Checklist."
Fees
The Companies Commission of Malaysia (SSM) charges various fees related to the registration and ongoing compliance of interest schemes under the Interest Schemes Act 2016.
General Fee Principles for Interest Schemes:
Prelodgement Form and Application Fees: The initial step for registering an interest scheme involves submitting a Prelodgement Form along with the required fees. These fees vary depending on the nature and size of the scheme.
Registration Fees: Upon approval, there will be further registration fees to officially register the scheme with SSM. Again, these are tiered based on the scheme's characteristics (e.g., premium, small, foreign, and potentially fund size).
Lodgement of Documents: There are fees for lodging various documents throughout the lifecycle of an interest scheme, such as:
Lodgement of prospectus or product disclosure statements (and any supplemental or replacement prospectuses).
Annual returns by the management company.
Notices of changes (e.g., changes in address of the register of interest holders).
Other Applications/Services: Fees may apply for other applications, such as:
Applications for relief from certain requirements.
Applications for extensions of time.
Obtaining copies of documents (e.g., trust deeds).
Where to Find Official Fee Information:
The most accurate and up-to-date information on SSM fees for interest schemes will always be found directly on the Companies Commission of Malaysia (SSM) official website.
Here's how you might navigate their site or what to look for:
SSM Official Website: Go to www.ssm.com.my.
Legal Framework / Interest Scheme Act Section: Look for sections related to "Legal Framework," "Legislation," "Interest Schemes Act 2016," or "Registration of Company/LLP/Business" and then specifically "Interest Scheme."
Practice Directives and Regulations: SSM often publishes "Practice Directives" and "Regulations" that elaborate on the Act. The specific fees are usually detailed in the Interest Schemes Regulations 2017 or subsequent amendments.
Forms: When you find the forms for interest scheme applications and lodgements (e.g., "Application For Registration Of New Schemes"), the associated fees are often mentioned directly on or alongside these forms.
Table of Fees: SSM has general "Table of Fees" pages for various services (company registration, business registration, LLP registration). While a direct "Interest Scheme" specific table might not be prominently linked, the fees related to prospectus lodgement and annual returns for companies (which are often the entities operating interest schemes) can give you an idea.
General Fee Structure:
Here are some typical fees SSM charges:
Application for incorporation of a company limited by shares: RM1,000
Lodgement and application for registration of prospectus: RM2,000
Lodgement of annual return for a public company: RM500
How Bestar can Help
Interest Schemes Act & Guidelines in Malaysia
Establishing and operating an interest scheme in Malaysia under the Interest Schemes Act 2016 (ISA 2016) is a complex undertaking with significant legal and financial implications. This is precisely where the expertise of Bestar becomes invaluable. We play distinct roles in ensuring compliance, protecting interests, and optimizing the scheme's structure and operations.
Bestar is crucial for navigating the intricate legal framework, drafting compliant documents, and providing strategic professional advice throughout the entire lifecycle of an interest scheme. Bestar brings expertise in financial modeling, feasibility analysis, risk assessment, and operational efficiency, complementing the legal framework with sound financial planning.
Legal Structuring and Compliance:
Scheme Classification: Advising on the correct classification of the scheme (Premium, Small, Foreign, or a combination) and the associated minimum capital and fund size requirements.
Management Company Setup: Assisting in the incorporation of the public company limited by shares, ensuring its constitution aligns with the requirements of the ISA 2016 (e.g., stating the management of an interest scheme as a main object).
Regulatory Compliance: Providing comprehensive advice on all aspects of the ISA 2016, Interest Schemes Regulations 2017, and relevant SSM Practice Directives. This includes ensuring the management company meets all qualitative and quantitative criteria.
Drafting and Reviewing Core Documents:
Trust Deed/Contractual Agreement: This is perhaps the most critical legal document. Bestar meticulously drafts or reviews the Trust Deed to ensure it fully complies with the First Schedule of the ISA 2016. This includes defining:
Rights and obligations of the management company, trustee, and interest holders.
Detailed provisions for the administration, management, and dissolution of the scheme.
Mechanisms for profit distribution, asset management, and risk mitigation.
Procedures for meetings of interest holders and dispute resolution.
Prospectus/Product Disclosure Statement (PDS): Bestar ensures the prospectus adheres to the strict disclosure requirements of the ISA 2016 (Second Schedule). This involves:
Ensuring accuracy, completeness, and clarity of all information presented to potential investors.
Drafting comprehensive risk factor disclosures.
Reviewing financial projections and reports for legal compliance and potential liabilities.
Ensuring the language used is not misleading or deceptive.
Other Agreements: Drafting or reviewing ancillary agreements, such as asset acquisition agreements, operational agreements, and agreements with third-party service providers, to ensure they align with the scheme's objectives and regulatory requirements.
Liaison with Regulators:
Application Submission: Preparing and submitting the Prelodgement Form and all supporting documents to SSM, ensuring all forms are correctly filled and accompanied by necessary declarations.
Responding to Queries: Handling all queries, requests for clarification, and further information from SSM during the review process, including drafting legal submissions if necessary.
Obtaining Approvals: Facilitating the entire approval process, from initial submission to the issuance of the Certificate of Authorisation.
Corporate Governance and Duties:
Advising on Roles: Clarifying the specific duties, responsibilities, and liabilities of the management company, its directors, and the appointed trustee under the ISA 2016.
Ongoing Compliance: Guiding the management company on continuous compliance requirements, such as periodic reporting, annual returns, and notifications of changes.
Feasibility Studies and Financial Modeling:
Viability Assessment: Conducting thorough feasibility studies to assess the financial viability and sustainability of the proposed interest scheme.
Financial Projections: Developing realistic and robust financial projections (e.g., revenue, costs, cash flow, profitability, return on investment) for inclusion in the prospectus/PDS. This is critical for meeting SSM's "profit test" requirements.
Sensitivity Analysis: Performing sensitivity analyses to understand how various market conditions or operational changes might impact the scheme's financial performance.
Scheme Structuring and Design:
Fund Size and Allocation: Advising on optimal fund size, how funds will be raised, and how capital will be allocated for the scheme's operations and assets.
Return Mechanisms: Designing appropriate mechanisms for distributing profits, returns, or benefits to interest holders, ensuring fairness and alignment with the scheme's objectives.
Pricing Strategy: Assisting in determining the pricing of the "interest" (e.g., units, memberships) offered to the public.
Risk Management and Mitigation:
Financial Risk Assessment: Identifying and quantifying financial risks associated with the scheme (e.g., market risk, operational risk, liquidity risk).
Mitigation Strategies: Developing strategies to mitigate identified financial risks and advising on internal controls.
Reporting: Preparing financial risk disclosures for the prospectus in a manner that is transparent and comprehensible to investors.
Operational Planning and Efficiency:
Business Plan Development: Assisting in developing a comprehensive business plan that outlines the operational aspects of the scheme, including management, marketing, and customer service.
Cost Management: Advising on cost structures and strategies to ensure operational efficiency and maximize returns for interest holders.
Due Diligence and Independent Reports:
Accountant's Report: For investment schemes, preparing the detailed accountant's report on the financial viability of the underlying enterprise, which is a mandatory part of the prospectus.
Independent Consultant's Report: If required (for certain prescribed schemes), engaging and working with independent consultants to produce reports on the technical or operational feasibility of the scheme.
In essence, Bestar ensures the scheme is legally sound and compliant with all regulatory requirements, while ensuring the scheme is financially viable, sustainable, and attractive to investors, and that its financial aspects are accurately and transparently presented. We provide a holistic approach that is essential for the successful registration and operation of an interest scheme in Malaysia.
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