As of 1 April 2024, the provisions concerning beneficial ownership reporting, as outlined in the amendments to the Companies Act 2016 (“CA 2016”) through the Companies (Amendment) Act 2024*, have come into effect. The Companies Commission of Malaysia (“CCM”) has launched the Electronic Beneficial Ownership System (“e-BOS System”) and updated the Guidelines for the Reporting Framework for Beneficial Ownership of Companies (“Revised Guidelines”). The following provides an overview of the updated reporting framework: –
Identification of a beneficial owner
Section 60A of the CA 2016 widens the definition of “beneficial owner” in the context of a company to “a natural person who ultimately owns or controls over a company and includes a person who exercises ultimate effective control over a company”. In the Revised Guideline, it is clarified that “ultimate effective control” covers situations where an individual holding less than 20% of shares or voting shares in a company is deemed a beneficial owner, if they exercise significant influence or control over the directors or the management of the company.
Verification of beneficial ownership information
In contrast to its predecessor, paragraph 55 of the Revised Guidelines expressly specifies that notices issued under section 60C of the CA 2016 together with their corresponding replies, constitute supporting documents for verifying beneficial owners and must be kept at the same location as the register of beneficial owners. Supporting information may also include certified copies of national identification card, passport, or other similar documents, founding documents, and agreements regulating the power to bind the company. Additionally, records such as the company’s constitution, register of members, minutes and resolutions, as well as other documents suggesting control or influence amount to supporting documents in identifying or verification of its beneficial owner.
The verification of beneficial ownership information can be conducted either at the company level or by the company secretary. This verification obligation is not a novel concept within the realm of know-your-customer protocols; reporting institutions would be familiar with such duties outlined in the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001.
By extending a similar duty on companies, the Revised Guidelines effectively strengthens the reporting framework and enhances transparency and stability, aiding in the combat against money laundering, terrorism financing, and other unlawful activities.
Information of senior management
Previously, companies only had to identify senior management or managing directors of a legal person who has ownership or control of the company when the company has reasonable grounds to believe it has a beneficial owner but could not identify them.
Under paragraphs 43 and 44 of the Revised Guidelines, companies are required to provide information of its senior management in two additional scenarios:
- The company has reasonable grounds to believe that it has no beneficial owner.
- The company is in the process of obtaining its beneficial ownership information.
In the second scenario, the company must replace the details of the senior management with those of the beneficial owner upon obtaining the beneficial owner’s information. Note that in the event the information of a senior management is submitted, companies are required to provide additional information – that is, the reason for naming the senior management in place of the beneficial owner.
Notification to CCM via the e-BOS System and relevant timings
The e-BOS System serves as an online platform for companies to notify CCM of their beneficial owner(s) information, including any updates and rectifications as necessary. The e-BOS System can be accessed through the SSM4U Portal.
CCM has also provided a step-by-step user manual for navigation of the e-BOS System. According to the FAQ issued by CCM, companies will be given three months from the enforcement date of the beneficial ownership provisions to lodge its latest beneficial ownership on the e-BOS System. Further details regarding the submission deadline are anticipated to be released by CCM.
Prior to the Revised Guidelines, new companies (i.e. those yet to submit the first annual return) were required to obtain information of its beneficial owner(s) within 30 days after appointing the company secretary. Subsequently, they had 60 days to record this information in their register of beneficial owners. During this 60-day timeframe, companies were required to notify CCM of the same within 14 days of recording the information into the register.
With the implementation of the Revised Guidelines, new companies now have 60 days from the appointment date of the company secretary to obtain and record the information of its beneficial owner(s). Similar to its previous position, companies must then notify CCM of the same within 14 days of recording the information into the register during the 60-day period.
Removal of exemption
Previously, certain entities such as licensed financial institutions, stock exchanges, approved private retirement scheme administrators, and companies with shares quoted on a stock exchange were exempted from the beneficial owner reporting framework.
Pursuant to paragraph 13 of the Revised Guidelines, no companies are exempted. However, the Minister retains discretionary powers under section 60E of the CA 2016 to exempt certain classes of companies from the beneficial ownership reporting requirement by publishing an order in the Gazette.
According to the FAQ issued by CCM, exempted companies are still obliged to notify CCM of their exempted status and provide the information of its senior management to CCM.
Access to beneficial ownership information
Paragraph 59 of the Revised Guidelines provides that information on beneficial ownership is not publicly available. However, note that the Minister retains the discretion to prescribe persons or class of persons that will be given access to registry of beneficial owners and register of beneficial owners through an order published in the Gazette as provided under section 60B(9) of the CA 2016.
Notwithstanding, paragraph 37(d) of the Revised Guidelines states to ensure the accuracy of the beneficial ownership information, and for such information to be accessed in a timely manner, companies are required to provide access to (a) Bank Negara Malaysia pursuant to anti-money laundering laws, (b) law enforcement agencies, (c) the beneficial owner whose name has been entered in the register of beneficial owners, and (d) any other person authorised by the beneficial owner.
Therefore, authorisation by the beneficial owner is strictly limited to information concerning themselves and not the other beneficial owners. This restriction potentially limits public access to crucial information necessary to ascertain the ownership structure of a company.
We foresee consent clauses being built into a company’s process such that beneficial owners authorise the release of information relating to them for various purposes, including for fulfilment of know-your-customer processes. It is common for investors to request cap tables from portfolio companies to fulfil their own compliance obligations in their home jurisdictions. Ensuring that proper processes are in place for such data to be transferred, whether from a CA 2016 or Personal Data Protection Act 2010 perspective, or crucial.
Conclusion
With the new amendments, companies are required to take the initiative in identifying and verifying its beneficial owners. Further, companies are obligated not only to maintain and update their register of beneficial owners but at the same time, to keep CCM informed of such information via the e-BOS System.
The amendments strengthen Malaysia’s standards in its efforts to combat money laundering, terrorism financing, and proliferation financing, in line with Recommendation 24 of the Financial Action Task Force relating to “Beneficial Ownership of Legal Persons”.
We are also interested to see how this framework could potentially increase efficiencies in the know-your-customer processes.
