Does Arranging and Advising on Fundraising Require a CMSL? Court of Appeal Rules on Regulated Activities Under CMSA

by Messrs Lui Bhullar

Does Arranging and Advising on Fundraising Require a CMSL? Court of Appeal Rules on Regulated Activities Under CMSA

Introduction

In a recent decision, the Court of Appeal clarified the boundaries of what constitutes "regulated activities" under the Capital Markets and Services Act 2007 (CMSA), particularly in the context of arranging and advising on funding exercises. This case is significant for capital market lawyers in Malaysia, fintech advisors, and consultants involved in corporate finance who may unwittingly operate without a CMSL license.

Background

The dispute arose when a company (the plaintiff) was appointed as an arranger and advisor under two letters of engagement and a supplemental addendum to assist in a funding exercise. The defendant companies later refused to pay for the services rendered, claiming that the plaintiff had provided regulated capital market services without holding a valid Capital Markets Services Licence (CMSL) under Section 61 of the CMSA.

In response, the plaintiff filed two suits at the High Court (Suits 885 and 886) for recovery of fees. The defendants counterclaimed, arguing that the contracts were illegal and void due to the plaintiff’s lack of licensing.

Legal Issue: Can the Matter Be Decided on a Point of Law?

The defendants attempted to dispose of the plaintiff’s suits under Order 14A of the Rules of Court 2012, by posing three key legal questions:

1. Whether the services fell within the "regulated activities" under Part 1 of Schedule 2 of the CMSA;

2. Whether a CMSL was required under Section 58 if the answer to (1) was yes;

3. Whether the agreements were illegal or unenforceable due to lack of licensing.

The High Court dismissed the application, holding that the questions involved disputed facts and mixed issues of law and fact. The defendants appealed.

Court of Appeal Decision: No Appellate Interference Warranted

The Court of Appeal upheld the High Court’s ruling, delivering a strong message on judicial restraint in appeals involving procedural discretion.

Key Findings:

• The issue of whether the services constituted regulated activities under the CMSA could not be resolved without examining evidence at trial. Descriptions in agreements alone were insufficient.

• Expert evidence and possible technical guidance from the Securities Commission (SC Malaysia) would be relevant in determining whether the services required a CMSL license.

• The agreements were intertwined with counterclaims and complex factual disputes, including questions of implied terms and restitution.

• The illegality defence could not be resolved in isolation; a full trial was necessary.

• The High Court Judge had correctly exercised discretion under Order 14A and appellate interference was unwarranted.

Impact on Capital Market Participants and Legal Advisors

This case is a reminder that determining whether a service falls under regulated activities in Malaysia requires more than a cursory reading of contractual terms. Entities offering advisory, fundraising, or structuring services must seek legal advice to determine whether a CMSL license is required, or risk agreements being voided for illegality.

It also affirms that in cases where factual disputes exist, courts are unlikely to dispose of the matter without a full trial, especially when the implications include contract enforceability, restitution, and compliance with SC Malaysia’s licensing regime.

Conclusion

For companies engaging in capital market activities in Malaysia, this case underscores the importance of seeking early legal advice from a qualified securities law firm. Whether you’re acting as an arranger, advisor, or operator of a digital platform, confirming whether your services fall within regulated activities under the CMSA is critical.

If you are unsure whether your business requires a CMSL license, consult a reputable capital market lawyer in Malaysia to ensure compliance and avoid enforcement risks.

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Whether you need legal assistance with securities law, IPO, M&A, debt financing, or regulatory compliance, we are here to help you navigate the complexities of the capital markets and achieve your business objectives.

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