Fostering transparency: Enhancing reporting standards for beneficial ownership in Malaysia (2024)

The transitional period for the beneficial ownership reporting framework that was implemented since 1 March 2020 has come to an end following the enforcement of the Companies (Amendment) Act 2024 (‘the Act’) on 1 April 2024. All entities are now given until 30 June 2024 to submit the information on their beneficial owner (“BO”) to the Suruhanjaya Syarikat Malaysia (“SSM”) (also known as the Companies Commission of Malaysia). This is done through the Electronic Beneficial Ownership System (“e-BOS”), a new electronic filing platform offering a more streamlined process for submission.

One significant revision to the Act involves enhancing the regulations pertaining to beneficial ownership reporting, aligning them with international standards such as the Financial Action Task Force (FATF) and the Organisation for Economic Co-Operation and Development (OECD). This aims to reinforce Malaysia's commitment towards promoting a transparent business environment and combating financial crimes. Accordingly, the guidelines pertaining to beneficial ownership reporting (“BO Guideline”) have also undergone a significant revamp to complement these efforts.

The revised BO Guideline appears to cast its net wider, covering all entities registered with the SSM without any exemptions given as opposed to the previous guideline.In this respect, all entities are required to identify its BO and in some cases, the senior management of an entity may potentially be named in place of the BO. Additionally, the Act and BO Guideline have broadened the roles and responsibilities to entities and BO themselves.

With the added obligations for the maintenance and reporting of such information to the regulator, who should be ultimately responsible for the end to end process? In our previous article, we urged business owners to (1) consider if exemption is applicable; (2) identify the BO by assessing all criteria; and (3) get the necessary BO information ready for submission to the SSM upon conclusion of the transitional period. So, how would these enhancements affect business owners and directors now?

1. Revision of BO’s definition

The definition of BO in the Act is now broadened to include any natural person who could exercise ultimate effective control over an entity, even if they have no shareholding interest in the entity.

The new definition of BO is “a natural person who ultimately owns or controls a company through interest in shares and effective interest and includes an individual who exercises ultimate effective control over the company”.

There is also an additional criteria introduced in the BO Guideline in which any individual holding less than 20% of shares or voting rights, but is still exercising significant control or influence over the company, will be considered a BO.

2. No more exemption, disclosure of a natural person is mandatory

Under the previous BO Guideline (which has now been superseded), entities that meet one or more of the exemption criteria (such as entities listed in local or foreign stock exchange) could be exempted from identifying BO by making a declaration. However, with the enforcement of the revised BO Guideline, no entity is exempted from the BO reporting framework. This includes public listed and government or state-owned entities, who will be subject to similar reporting obligations.

For entities that are unable to identify a BO or are in the process of obtaining BO information, they must provide the information of at least a natural person from their senior management. This individual should be someone who holds a key position in managing the entity and has the authority to influence its operations and make pertinent business decisions.

This ensures that even in cases where the BO is yet to be identified, there is still transparency and accountability by disclosing the individual or individuals who are primarily responsible for running the entity.

3. Reporting obligations

All existing entities incorporated or registered in Malaysia, regardless of their previous exemption status or ongoing efforts to acquire BO information, are now required to submit the information of their BO with the SSM no later than 30 June 2024 via SSM’s e-BOS portal.

Furthermore, newly incorporated private companies in Malaysia must obtain and submit the BO information to the SSM within sixty days from the appointment of the first company secretary. For foreign branches seeking registration in Malaysia, the BO information must be obtained and submitted to the SSM along with the application for registration. This ensures that from the very beginning, all new ventures are held accountable to the beneficial ownership reporting.

Subsequently, as a continuing obligation, the BO information must be submitted alongside the entities’ annual returns, and whenever there are changes to the BO(s) or their information recorded in the Register of BO, updates shall be made through SSM’s e-BOS portal.

The responsibility of providing accurate and up-to-date information now rests with the BO, making it essential for them to inform the entity if they qualify as a BO, or when the BO changes their particulars or ceases to be a BO, in order for the entity to notify the SSM.

4. Duty to verify the BO information

Entities bear a crucial responsibility when it comes to verifying the accuracy and authenticity of the BO information. By conducting thorough verification processes, entities can confidently establish the BO as someone who is reasonably regarded as the rightful BO of the entity.

This verification process is a vital step towards maintaining integrity and transparency. It empowers entities to uphold the highest standards of accountability and ensure that the BO information they provide is reliable and trustworthy.

5. Duty to update register of BO and maintain BO information

After conducting the verification process on the BO information, entities are now required to enter and update the BO information into the register of BO.

To ensure a robust and reliable record, entities must retain the supporting documents provided by the BO, including proof of identification and verification, along with the register of BO at the registered office for a minimum of seven years after cessation of the BO. These documents serve as tangible evidence that appropriate measures have been taken to identify, verify and accurately record the BO information in accordance with the enhanced requirements.

In conclusion, the onus is on business owners to familiarise themselves with and comply with the enhanced requirements surrounding beneficial ownership reporting.

To ensure a robust process is in place, entities may consider putting in place a BO policy or internal guidance document as a first line of defence in case anything goes wrong. Authorities and law enforcement agencies (including the SSM) may conduct inspections and any non-compliance with the Act and BO Guideline may result in enforcement actions and hefty penalties.

Contact us now to let us help you navigate through the new landscape of beneficial ownership reporting. We will provide the guidance you need to understand the process and ensure your compliance with the latest guidelines.

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