Our previous article discussed the licensing requirements under section 58 of the Capital Markets and Services Act 2007 for the marketing of foreign funds in Malaysia. Click here to read the article. Building on that foundation, this article examines the “reverse inquiry” exemption introduced by the Securities Commission Malaysia (“SC”) through its FAQs for Undertaking of Regulated Activities by Unlicensed Foreign Capital Market Intermediaries (“FAQs”). Specifically, it considers the core principles underlying the exemption, evidential requirements for compliance, the regulatory treatment of recurring inquiries and follow-up meetings, and practical best practices for unlicensed foreign intermediaries.
Principles
The reverse inquiry exemption allows unlicensed foreign intermediaries to carry out regulated activities in Malaysia without obtaining a Capital Market and Services Licence (“CMSL”), provided two conditions are met. First, the activity must be conducted entirely outside Malaysia, with the foreign firm having no physical presence in the country. Second, the activity must result from a genuine, prospect-initiated request without any form of solicitation. These conditions distinguish between intermediaries responding to unsolicited client approaches and those actively marketing in Malaysia, the latter of which triggers licensing requirements.
Evidential Requirements
The SC emphasises that maintaining proper evidence of reverse inquiries is critical. Intermediaries must be able to demonstrate that the engagement was initiated by the Malaysian prospect without any form of solicitation. Practical documentation should include the initial client correspondence, details of how the client became aware of the intermediary’s services, evidence of the client’s proactive approach, and proof that there was no form of solicitation before the inquiry.
Recurring Inquiries
The FAQs also address potential abuse of the exemption, where the same foreign entity appears to act for multiple parties via purported reverse inquiries. Such recurring inquiries may raise doubts about whether the intermediary is effectively soliciting Malaysian clients, which could trigger licensing obligations. While the SC does not specify a bright-line threshold, a pattern of multiple engagements may indicate systematic marketing rather than bona fide, unsolicited requests, underscoring the need for caution.
Follow-Up Meetings
Follow-up meetings in Malaysia with clients who initially engaged the intermediary abroad generally do not trigger licensing requirements. However, this tolerance is limited, and a CMSL is required if the intermediary markets its services locally or meets with clients in Malaysia to promote additional services or products. The distinction lies between servicing an existing client relationship under a genuine reverse inquiry (permissible without a licence) and actively soliciting clients in Malaysia, which triggers licensing obligations.
Best Practices
To mitigate regulatory risk, foreign intermediaries are advised to adopt the following practices:
- Maintain Comprehensive Records: Document the client’s initial approach and the circumstances of engagement to evidence a genuine reverse inquiry.
- Avoid Systematic Marketing: Be cautious of patterns that could be perceived as active solicitation.
- Consider Local Partnerships: Establishing a tie-up with a locally licensed entity can provide a structured and scalable approach for sustained market access.
- Utilise Temporary Licences Where Appropriate: Where client meetings or activities must occur in Malaysia, consider the temporary licensing framework under the CMSA rather than relying solely on the exemption.
Conclusion
The reverse inquiry exemption offers a practical regulatory pathway for unlicensed foreign intermediaries to serve Malaysian clients who proactively seek their services abroad. Strict adherence to best practices and robust internal controls are, however, essential for mitigating compliance risks.
The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
