Sujatha Sekhar Naik, CEO of SIDREC sat down with Smart Investor’s editor Priya Rama recently to share how SIDREC can help investors resolve disputes related to capital market investments in Malaysia.
Capital market products/services under SIDREC’s purview would cover securities (e.g. shares, warrants, bonds, structured products such as structured warrants etc.), derivatives (e.g. futures or options), unit trust and Private Retirement Schemes (PRS).
We reproduce Part 1 of the four-page feature Capital Market Investors: We’ve Got Your Back in the September 2017 issue of Smart Investor.
As Malaysia aims to be a developed country by 2050, providing access to redress for capital market disputes becomes imperative, in tandem with internationally accepted standards of developed jurisdictions.
The need to ensure investors, and specifically the smaller retail investors, had affordable and expert redress avenue is what prompted the Securities Commission Malaysia (SC) to set up the Securities Industry Dispute Resolution Center, or SIDREC as it is more popularly known, in December 2010.
Smart Investor recently had a chat with SIDREC’s Chief Executive Officer, Sujatha Sekhar Naik to understand how SIDREC works to ensure that the interest of all parties involved in the dispute resolution process is duly addressed.
Smart Investor (SI): Kindly enlighten us about the roles and responsibilities of SIDREC in detail. What actually transpired for SC to set up an independent dispute resolution body?
Sujatha Sekhar Naik (SN): The primary reason behind the set-up of SIDREC is to provide investors, specifically the smaller investors an avenue to resolve disputes involving monetary loss arising from capital market investments or transactions with a licensed or registered capital market intermediary.
Of course, there are other redress avenues such as the courts and arbitration; however, many smaller retail investors cannot afford to pursue their claims as it can be a costly and timely affair.
Investors may also not understand the complexities and legal hurdles that may arise. These obstacles may cause investors to lose heart.
With SIDREC, smaller investors will always have someone to turn to. They can afford the service, because it’s free!
I should add that for issues involving pure banking and insurance claims, our peer organisation, the Ombudsman for Financial Services (OFS), is there to offer similar help, under the purview of Bank Negara Malaysia.
Between SIDREC and OFS, we seek to ensure the public have access to an affordable and independent avenue for redress for disputes across the financial markets.
SI: What are the types of cases that usually come to SIDREC, and which ones are accepted or dismissed?
SN: SIDREC can only accept eligible claims, i.e. against a capital market intermediary who is a SIDREC member, involving a capital market product or service and within the claim limit.
It should also not be an excluded dispute as set out in our rules (e.g. the matter is in court or subject
to a decision of the court, or has exceeded the time limit under the Limitation Act etc).
SIDREC comes in when things go wrong in an investment
or transaction with a licensed
or registered capital market intermediary, and the investor believes any financial loss they suffered is due to the intermediary’s act or omission.
It does not have to be a breach of the law or misconduct. It may have been caused by an error or misunderstanding on the part of the intermediary or a systems glitch.
It may also have been caused by a misrepresentation or mis-selling or inadequate disclosure or fraud.
If the claimant cannot resolve the matter with the intermediary, we will try to help, first through mediation and if that fails, then we will adjudicate the matter and make a decision.
The public must understand that SIDREC is not here to help them get out of bad investment decisions that they themselves make.
If their losses are due to the normal highs and lows of the market, that relates to market performance and is part of the market risk of an investment. If the investor appears to have colluded with certain parties and are party to misconduct or fraud related to their portfolio, we will dismiss the case. So, investors need to come to us with clean hands.
If the investor has contributed
to the loss through his conduct, SIDREC will still accept the case,
but such contributory conduct (e.g. negligence) will be taken into account and may impact on the finding and reduce partially or even negate any compensation they may receive.
SI: We understand the service is free for smaller investors. Can you please elaborate?
SN: Yes, the service is free for claims of RM250,000 and below. As our primary purpose is to ensure the smaller retail investor has access to redress, we do not charge them a fee.
Imagine receiving expert help – from a case manager who stays with the claimant and the member until the dispute is resolved, to
a mediator who is a qualified alternative dispute resolution (ADR) specialist with capital market experience, mediating the whole process – absolutely free.
Make use of our services. We help both parties communicate more constructively to reach a mutually acceptable settlement that speaks to the interests of both parties and not just their rights. If that does not work, we will adjudicate the matter and make a decision, which is binding on the intermediary if the claimant accepts it.
SI: Is there a claim limit?
SN: We have two components – the mandatory and the voluntary. The former entails claims of RM250,000 and below, while the latter involves higher amounts.
Under the mandatory component, SIDREC may give awards up to RM250,000. For such claims, SIDREC’s members must participate in the process and if the matter is not settled at mediation and proceeds to adjudication, members must comply with any decision that SIDREC issues (if accepted by the claimant). Our service is free to the investor under the mandatory component.
However, if the investor’s claim exceeds RM250,000 and they still wish to use the mandatory component of our service, they may do so if they limit their claim to RM250,000, even
if their initial claim was higher. Any settlement following mediation or adjudication would be a full and final settlement of the claim.
We recognise investors with higher claims (above RM250,000) may also benefit from our help. We provide a voluntary component to our service, whereby if both parties wish to use our service, we will provide our mediation and adjudication services.
However, as these claims are clearly not by the smaller retail investor, the service while still affordable is not free to the investor. Both parties have to pay a fee.
Who are SIDREC Members?
SIDREC Members comprise companies, which are registered persons, or are licensed by the SC to deal in securities, derivatives, PRS, and/or undertake fund management.
These include banks, stockbroking companies, futures broking companies, unit trust management companies, fund management companies, PRS providers and distributors, and financial planners who are corporate unit trust/PRS advisers.
Look out for Part 2 of this interview. For more information, contact SIDREC at www.sidrec.com.my.