Principles for a Fair and Effective Financial Market for the Malaysian Financial Market

Financial markets remain a critical component of the economy, providing a key conduit through which savings and investments can be efficiently allocated between economic sectors and agents. An important element that needs to exist to allow financial markets to function effectively is an environment of confidence and trust that market participants’ activities can be undertaken in a fair and competitive setting.

Over time, financial markets have grown increasingly complex with highly sophisticated instruments and strategies. Market players have also evolved, driven by the changing environment and regulatory landscape. In some cases, the creation of adverse incentives has led market participants to abuse their positions and take advantage of information asymmetries for unfair and dishonest financial gains. In certain segments of the financial market, activities have also become more opaque. This has led to a public trust deficit fuelled by the significant amount of volatility and uncertainty, which has the potential to impair the function and effectiveness of the financial market.

Malaysia has a highly open and accessible financial market. To date, it has shown a significant degree of resilience against external shocks and sharp movements of capital flows. Nevertheless, vulnerabilities to speculative investment flows and, at times, uncompetitive market behaviours have led to sharp volatilities and price misalignments. This has been compounded by market participants who have engaged in questionable activities and conduct.

It is against this backdrop that the Principles for a Fair and Effective Financial Market for the Malaysian Financial Market (Principles) is introduced. This is in line with recent global efforts to restore integrity and trust in financial markets by reviewing and setting new standards of best market practices, raising the level of professionalism and enforcing regulation. The Principles also takes into account Malaysia’s structural difference as an emerging market, which may require different approaches compared to that of advanced markets. For a market such as Malaysia, it is important that the Principles also promote and preserve a state of balance in the financial market between various interest groups while supporting fair play and market-driven outcomes.

The aim of the Principles is to achieve a financial market environment that is trusted, competitive, resilient and best positioned to support the sustainable growth of the Malaysian economy. The Principles will provide broad guidance such that it can be universally internalised and applied by all market participants in the form of their own internal codes of conduct, guidelines, organisational and governance structures, as well as in their financial market activities.

This document belongs to Bank Negara Malaysia (BNM). Full access to the original source is available here: https://www.bnm.gov.my/banking-islamic-banking