Court Upholds Revocation of CMSL License: No Automatic Stay Pending Appeal Under CMSA

by MESSRS LUI BHULLAR

Court Upholds Revocation of CMSL License: No Automatic Stay Pending Appeal Under CMSA

Introduction

In a key judicial review decision, the Malaysian courts affirmed the Securities Commission Malaysia (SC)'s authority to revoke a Capital Markets Services License (CMSL) with immediate effect under the Capital Markets and Services Act 2007 (CMSA). The applicant, a licensed fund management firm, sought to challenge the SC's decision after its CMSL was revoked without a stay pending appeal. This decision has significant implications for CMSL license holders and those advising on regulated activities in Malaysia’s capital markets.

Background: Revocation of CMSL by SC Malaysia

The applicant was a licensed fund manager with a CMSL granted by the SC, authorizing it to engage in fund management and dealing in securities and derivatives. The SC issued a notice to show cause, citing serious breaches of:

• Section 72(2)(a)(i), read with Sections 64(1)(j) and 64(1)(h)(v) of the CMSA

• Compliance Guidelines for Capital Market Intermediaries

• Section 356(1)(a) of the CMSA, read with the AML Guidelines

Following the applicant’s written reply, the SC took eight months to consider the matter before issuing a revocation letter, effective immediately. The applicant was required to cease operations despite pending appeals to both the SC and the Minister of Finance.

Legal Challenge and Grounds for Judicial Review

The applicant sought judicial review, arguing that the CMSL revocation was tainted by:

1. Delay in the SC's decision (over eight months)

2. Unreasonable rejection of applications to appoint qualified personnel

3. Improper reliance on Section 80(4) of the CMSA to deny a stay

4. Ignoring the appeal process under Section 80(3)

5. Prior withdrawal of enforcement directives under Section 125 CMSA

An injunction to stay the revocation pending appeal was denied, and the SC successfully applied to strike out the originating summons, asserting that the applicant should pursue judicial review instead.

High Court Decision: No Bad Faith or Procedural Impropriety

The Court held:

• Delay Not Prejudicial: The eight-month delay was not unreasonable given the seriousness of the breaches. The applicant was still allowed to operate during this period.

• No Stay Under s. 80(4): The SC lawfully exercised its discretion under Section 80(4) of the CMSA to revoke the CMSL with immediate effect in the interest of investors and the public.

• Limited Appeal Rights: Since the applicant's CMSL was limited to fund management (not dealing in securities or derivatives), it could not invoke appeal rights under Section 80(2) to the Minister.

• Multiple Breaches Justified Revocation: The SC’s decision was based on multiple compliance failures, poor governance, and lack of due care, and was consistent with its statutory duty to protect the capital market.

• Lifting of Earlier Directives Irrelevant: Past leniency by the SC did not override the need for revocation based on fresh violations.

Implications for CMSL Holders and Capital Market Participants

This case confirms that:

• The Securities Commission Malaysia can revoke a CMSL license with immediate effect if it deems it necessary for the public interest, even if appeals are pending.

• A CMSL holder cannot presume a stay of revocation under s. 80(3) if the SC invokes s. 80(4) explicitly.

• Entities involved in regulated activities under the CMSA must maintain high standards of compliance or risk permanent revocation.

• Judicial review will not succeed unless bad faith or procedural impropriety is clearly demonstrated.

Conclusion

The ruling underscores the need for licensed capital market entities to engage in robust compliance practices and maintain a transparent relationship with regulators. For businesses and professionals navigating the complex regulatory landscape of Malaysian capital markets, working with an experienced capital market lawyer in Malaysia or a reputable securities law firm is essential to ensure continued CMSL compliance and risk mitigation.

If your firm requires legal advice on CMSL licensing, revocation risks, or regulatory investigations, consult our team for expert representation before the Securities Commission Malaysia and in judicial review proceedings.

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