KUALA LUMPUR (June 24): The Securities Commission Malaysia (SC) on Tuesday issued guidelines on product governance (PGG) to strengthen investor protection and encourage responsible product development and distribution in the capital market. The guidelines will come into force on Jan 2 next year.

The PGG requires product issuers and distributors to prioritise investors' interests when creating and distributing unlisted capital market products. This must be reflected in their controls, policies, and procedures (CPPs).

The guidelines apply to all unlisted capital market products, with the exception of ordinary shares, over-the-counter derivatives, venture capital or private equity funds, and products available on recognised market platforms.

"The PGG adopts a principle-based approach, allowing firms to implement their product governance framework that best suits their business model while still achieving its desired regulatory outcomes. This is crucial in protecting investor's interests and driving responsible innovation," said SC chairman Datuk Mohammad Faiz Azmi.

"By implementing an effective product governance framework, firms will also be able to demonstrate their commitment to ethical and responsible business practices, which is key to building trust in investors and regulators," he added.

Under the PGG, firms must also establish CPPs to enhance product suitability for target markets and proactively reduce potential harm. The guidelines also reinforce accountability for product design and distribution decisions at both the board and management levels.

Additionally, issuers and distributors are required to share information to ensure that products consistently meet their intended market needs.

Faiz said the PGG aligns with international best practices and incorporates feedback gathered from the industry during its formulation.

The implementation date, set for next year, provides firms ample time to understand the requirements and make the necessary preparations for compliance, the SC added.