This article first appeared in The Edge Malaysia Weekly on February 23, 2026 - March 1, 2026

THE Securities Commission Malaysia (SC) is finalising a regulatory framework that clarifies the scope of and licensing requirements for trust products offered by trust companies, including cash trusts that have sprouted up in recent years. 

The regulator’s move comes amid mounting concerns about the protection of public interest and the insufficient regulation of trust companies, particularly cash trust entities that are investing clients’ money in the capital markets. 

“The SC has noted an increasing trend of trust products being offered in various forms and by various types of trust companies with investment returns, including via investment in capital market products,” the regulator tells The Edge in an email reply to its queries about the framework.

According to the SC, the regulatory framework will empower it to respond quickly to certain concerning trends in the market in respect of investment products offered by trust businesses involving “regulated activity via prescription of the types of trust companies and/or products which are exempted from the licensing requirement”.

Nevertheless, the SC points out that the framework it is working on will only apply to investments linked to capital market products, such as securities, bonds and unit trusts. Thus, it acknowledges that a broader, coordinated approach remains necessary, and that it is working closely with other authorities to address regulatory gaps and strengthen investor protection.

The SC says it is in discussions with other agencies on how best to regulate this area, given the rising number of public queries on trust-based investment products.

On Feb 11, the Ministry of Finance (MoF) said in a written parliamentary reply that the SC is set to introduce a framework to clarify the licensing requirements for cash trust schemes that invest in capital market products, as part of efforts to strengthen regulatory oversight.

According to MoF, cash trust schemes are managed by trust companies registered with the Companies Commission of Malaysia (SSM) under the Trust Companies Act 1949 and are also subject to the Trustee Act 1949.

In recent years, the SC has said the number of trust products being offered has been rising, particularly to HNWIs looking for investment opportunities and estate planning tools, in various forms and by different types of trust companies. 

In its 2023 annual report, the regulator said it had begun to investigate unlisted companies and entities offering cash trust products, and flagged concerns of potential violations of capital market laws.

The annual report stated that the SC had observed “certain possible adverse conduct” by unlisted companies that typically offer preference shares and entities offering cash trust products. A review suggests possible breaches of the laws, including offering shares without registering a prospectus with the regulator.

“Several investigations have been initiated,” the SC said in the annual report. These included possible breaches of section 58 on the capital market services licence, section 232 on the requirement to register a prospectus and section 179 on the potential use of “manipulative and deceptive devices”.

However, the regulator has yet to reveal the outcome of these investigations. Some of them are said to be related to cash trust schemes designed to provide investors with a lower-risk investment option for liquidity purposes.

It should be noted that like all other trust companies, cash trusts are not regulated by the SC or Bank Negara Malaysia.

Through channel checks, cash trust schemes often promise lucrative returns of no less than 10% annually via investments or money-lending activities, among others. 

Unlike other trust companies,  the schemes offered by cash trust firms come with a lock-in period of three to five years, depending on the terms and conditions.  A steep penalty will be imposed for early withdrawal. 

Industry observers stress that the regulatory concerns do not relate to the fundamental structure of a cash trust itself, which is used for liquidity or as an estate planning tool.

Over the years, however, certain schemes, particularly those promising high fixed returns, have been marketed as low-risk investment alternatives to regulated capital market instruments.

According to Fareez Shah & Partners managing partner Fareez Shah, a cash trust is designed as an asset management and emergency liquidity mechanism by a trustee for the benefit of the beneficiaries. Unlike traditional trusts which may hold property, shares or other assets, a cash trust holds only cash.

He points out that the trustee holds and manages the money on behalf of named beneficiaries according to the terms set out in the trust deed and invests the cash in low-risk financial instruments, aiming to preserve capital and generate modest returns.

It is understood that any deposit-taking activity requires some form of licensing. For instance, fund management and unit trust activities fall under the purview of SC, while commercial banking and insurance activities are regulated by Bank Negara.

In the case of trust companies, licensing is regulated by SSM, which is under the Ministry of Domestic Trade and Cost of Living, and not MoF. 

Izwan & Partners managing partner Izwan Zakaria says a cash trust can be established under the Trust Companies Act 1949. 

“The trust deed executed by the settlor — that is, the client or customer — sets out the express terms and conditions, including the parameters and criteria that guide the trustee’s permitted investments. These may include capital market products regulated by the SC. The trustee, typically the trust company, is the legal holder of the entrusted cash and manages it for the benefit of the beneficiaries, such as family members,” he explains.

“However, a cash trust may be considered an ‘opaque’ structure as there is generally no requirement to lodge an information memorandum [for sophisticated investors] or a prospectus [for retail investors] with the SC. In many major jurisdictions, such lodgements are standard regulatory practice when launching new funds, which include periodical reporting by the fund manager as imposed by the relevant capital market regulator.”

“The purpose of a cash trust is primarily practical and protective. The cash placed in the trust is meant to be readily available to beneficiaries in the event of an emergency. For example, it can provide immediate funds to cover living expenses while waiting for insurance payouts, while bank accounts are temporarily frozen, or while the probate process is being completed,” Fareez tells The Edge.

Over the years, however, there has been a mushrooming of cash trust offerings.  These schemes are promoted on social media platforms and through agency models.

Datametrics Research and Information Centre (DARE) managing director Pankaj Kumar describes the situation as being similar to the deposit-taking cooperatives that collapsed in the 1980s. The cooperatives then also offered promising high monthly returns.

The cooperatives collapsed,  depositors failed to get back their money and sparked a bank run in 1986. Between 1986 and 1988, Bank Negara intervened in 32 deposit-taking cooperatives, four commercial banks and four finance companies, involving RM9.4 billion. The central bank then provided soft loans to assist the rehabilitation and refund of depositors.

Pankaj comments that the authorities need to come down hard on promoters of products promising unbelievably great returns, if any wrongdoings are discovered.  He believes the SC needs to tighten the rules  in order to prevent the  repeat of history. 

The size of the cash trust industry is currently not known.

The SC says the regulatory framework is part of a broader set of amendments to the Capital Markets and Services Act 2007 aimed at ensuring Malaysia’s capital market laws remain fit for purpose in a rapidly evolving landscape.

“The amendments are intended to ensure that our laws remain fit for purpose and to cater for the rapid development of Malaysia’s capital markets. They also take into consideration market development and feedback from the relevant stakeholders,” says the regulator.

According to the Capital Markets and Services (Amendment of Schedule 3, 4, 5 and 8) Order 2025, among the recommendations are several provisions to introduce the phrase “as may be determined by the SC” to effectively expand the regulator’s scope.

The SC points out that the objective is regulatory agility that will enable it to adapt quickly to market conditions, emerging trends and technological advancements.

“Agility is crucial as it will allow the SC to adapt to the dynamic nature of the capital markets. Hence, these provisions will enable the SC to respond quickly to changes, including catering to such changes arising from market conditions, trends and technological advancements,” the regulator explains.

The amendments also seek to facilitate capital formation and reduce the cost of doing business. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.