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Showing posts with label Financials. Show all posts
Showing posts with label Financials. Show all posts

Wednesday 5 October 2022

THE FIGHT AGAINST CYBERCRIME IN FINANCIAL SERVICES

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As losses to scammers mount, users and service providers such as banks need to drastically raise security levels.  

There is a need for heightened awareness and education about scams among the public

ONLINE banking fraud is a hot topic of the day. Not only are the case numbers rising, the amount of money being scammed is reaching eye popping levels.

Many Malaysians with online banking facilities are increasingly worried about cybercrime.

In the first seven months of 2022, Malaysians have lost about Rm415mil to scammers. 

The problem had become so bad that Bank Negara stepped in this week to issue a strict directive to all Malaysian banks to migrate away from the use of Sms-based authentication in online banking services.

The police are getting more vocal about the problem, providing updates on arrests being made and constantly dishing out advice to the public on ways to avoid getting scammed.

The banks, in the past few days, have also issued statements, talking about how they are raising their defences against cybercrime.

But, what went wrong in the first place for the situation to reach this level?

And, will the new steps that banks are taking help stem the problem?

Datuk Khairussaleh Ramli, the group president and chief executive officer of Malaysia’s biggest bank, Malayan Banking Bhd (Maybank) tells Starbizweek this: “With the rise in ecommerce activity spurred by the Covid-19 pandemic, and as more consumers prefer to transact online, fraudsters are taking the opportunity to find new ways to scam unsuspecting users.

“The increasing risk of cyber attacks and the potential impact on banks and their customers is a top concern. This has been elevated with the rise in more sophisticated scams such as ‘smishing’ (phishing via SMS) and malicious software (malware) scams impersonating banks recently.”

Ho Siew Kei, cyber risk leader of Deloitte Malaysia, reckons that 70% of commercial crime cases now can be categorised as cybercrime cases.

It appears that the problem lies with the usage of SMS in online banking transactions.

Many Malaysian banks have been using SMS one-time passwords or dubbed OTPS for online financial services.

Users need to key-in authentication OTP codes, obtained through SMS, to a browser or a mobile application to carry out their online banking transactions.

However, fraudsters have been able to get control of these codes from the devices of some customers.

It all starts when a user unknowingly downloads malicious applications or clicks on links that eventually leads to the installation of malware.

Such users are enticed to follow such links sometimes due to a promise of receiving a reward or other benefits.

Fraudsters, through the malware, will then be able to intercept sensitive information, including banking credentials and credit card numbers.

It also allows fraudsters to intercept messages being sent to the device such as the OTPS received for online transactions.

Upon obtaining the OTPS, fraudsters may also delete the SMS from the device, which often leaves victims believing they did not receive any SMS.

With this method, fraudsters are able to get control over users’ bank accounts. This can lead to financial scams that often occur without the knowledge of the victims

Sea: The better technology is widely available ranging from the use of QR codes to the use of external dongles

According to Sea Chong Seak, chief technology officer of cyber security firm Securemetric Bhd, the problem seems to lie not so much with attacks against banks’ systems or networks but rather due to the weaknesses that exist in the security of end users’ devices.

Users that download suspicious apps or go into questionable links through their mobile devices create an entry point for the fraudsters, owing to the low security control, he says.

“This is why banks need to move away from the usage of SMS OTPS in the authentication processes. The better technology is widely available ranging from the use of QR codes to the use of external dongles,” says Sea.

Sea cites the case of Citibank Malaysia that uses QR codes and biometrics in it authentication processes as an example.

Meanwhile, Maybank points out that it has introduced the usage of Secure2u since April 2017 for an alternative secure authentication method.

“It is a safer and more convenient way for Maybank customers to authorise transactions relating to account opening, fund transfers and payments on its online banking services mobile applications, using onetap approval and a six-digit transaction authorisation code (TAC) number generated on its applications,” says Khairussaleh.

For better protection against cybercrimes, Khairussaleh says: “Currently, we only allow one Secure2u device per account holder to prevent fraudsters completing financial transactions without authorisation from the registered device.”

However, it should be noted that while more secure authentication technologies have been available to banks, the usage of SMS OTP has been largely used because of the ease of use for customers. This also helped banks migrate its customers into online banking. The usage of dongles or other technologies would have also meant higher costs to the banks.

Ho Siew Kei, cyber risk leader at Deloitte Malaysia, says that while Bank Negara’s decision to nudge financial institutions towards more sophisticated authentication methods is a step in the right direction, there will be challenges due to the widespread use of more traditional devices at this point in time.

“However, as older devices are replaced by devices that are affordable yet are more advanced and able to support the latest technology, we should see adoption of the advanced security features become commonplace,” he says.

In replies to questions from Starbizweek with regard to the usage of SMS OTP in online financial transactions, Mohd Rashid Mohamad, group managing director and CEO of RHB Bank Bhd, says: “It takes into account the needs of various segments of customer demographics, including those who do not own smartphones or do not have access to data and Internet connections.”

Rashid says RHB Bank views fraudulent activities and financial scams very seriously, and is consistently enhancing its security measures.

However, he believes there is a need for heightened awareness and education about scams and frauds among customers.

“It is equally important that customers are kept informed on the latest scam and fraud trends so that they are aware of potential threats and therefore able to avoid becoming victims,” he says.

RHB Bank uses Secure Plus for its customers’ transaction authorisation process, which uses QR codes and biometrics for authentication.

Rashid notes that RHB Bank plans to fully migrate all transactions into Secure Plus by next year.

Technology firm Marco Kiosk Bhd, which provides Sms-based OTP services to banks, shares a different view. CEO Datuk Kenny Goh, says: “Cyber criminals target individual consumers or financial institutions irrespective of the authentication method or the underlying technology deployed.”

Despite welcoming the central bank’s decision to get financial institutions to move out of the SMS OTPS, Goh says: “There is nothing insecure about using SMS OTPS as experience has shown that often the gaps were in either compromised devices, scammers tricking consumers to download apps or getting unsuspecting users to forward SMS OTPS.”

Goh says that knowledge on scam prevention for the public is more crucial.

“Educating and instilling knowledge of how to prevent cyber-based scams is key rather than discarding a long-standing tool that has been proven effective,” he says.

Goh adds that Bank Negara’s decision to nudge banks to migrate away from SMS OTPS will not have any significant impact on Macro Kiosk’s earnings because of its wide product base and the fact that Sms-based services are only a small portion of its earnings.

Notably, Bank Negara has also directed financial institutions to implement other measures.

These include further strengthening of fraud detection rules and triggers for blocking suspected scam transactions and a cooling-off period to be observed for the first-time enrollment of online banking services or secure devices.

Additionally, the central bank said customers should be restricted to one mobile device or secure device for the authentication of online banking transactions and banks will be required to set up dedicated scam hotlines.

Meanwhile, Securemetric’s Sea refers to Fast Identity Online (FIDO) Authentication, which is a security standard that is increasingly recognised internationally for its capability to replace password-only logins with a more secure and fast login, owing to its multi-factor authentication.

According to Sea, FIDO Authentication is simpler for consumers to use, easier for service providers to deploy and is more secure than passwords and SMS OTPS.

Its multi-factor authentication includes the use of biometrics, QR codes as well as unique PINS.

FIDO Authentication is not new in Malaysia, as the National Cyber Coordination and Command Centre (NC4) was the first to adopt it, Sea points out.

Clarence Chan, partner, digital trust and cybersecurity at PWC Malaysia, adds that FIDO’S passwordless authentication stemmed from the goal of minimising phishing attacks, as passwords are the root cause of most data breaches based on various studies.

Ubaid Mustafa Qadiri, head of technology risk and cyber security for KPMG in Malaysia, says: “FIDO is a more secure approach compared to Sms-based OTPS.”

“With FIDO, customers can be restricted to using only one registered device for authentication and online transactions and as a result, will help in reducing financial frauds and scams while performing online transactions,” he adds.

Deloitte’s Chan adds that FIDO standards are seeing greater adoption in recent years, including Malaysia.

Nevertheless, even something like FIDO will not be able to totally eradicate cybercrime.

“Overall security for online transactions is still heavily dependent on the security of the user’s device. So, no authentication method can guarantee 100% safety,” Chan adds.

Meanwhile, Malaysia’s InspectorGeneral of Police Tan Sri Acryl Sani Abdullah Sani has been providing constant updates of the online fraud situation.

He said this week that the Rm415mil losses from January to July this year is the result of 12,092 online fraud cases.

For the whole of last year, losses accumulated to about Rm560.8mil coming from 20,701 cybercrime cases.

For 2019 and 2020, there were a total of 13,703 and 17,227 cybercrime cases with losses of Rm539mil and Rm511.2mil respectively, according to the IGP.

“From 2019 to July 2022, a total of 33,147 suspects in cyber fraud cases were arrested, with 22,196 cases charged in court,” he said.

It should be noted that online banking fraud is not limited to Malaysia.

Globally, cybercrime is the common type of fraud in most industries, based on a survey by PWC titled “Global Economic Crime and Fraud Survey 2022”. (see table)

PWC also notes that cybercrime poses the biggest threats across organisations of all sizes, followed by customer fraud and asset misappropriation.

Additionally, a recent report by S&P Global, titled “Asia-pacific Banks’ Digital Opening Raises Cyber Risks”, notes that threats of cyberattacks are soaring in the Asia-pacific region and globally too.

The report says that for banks, data breaches not only create a direct monetary loss but also damages the reputation of a bank and can hit a bank’s credit profile.

“To prevent attacks, Asia-pacific regulators will need a dogged determination to understand and manage risks. This points to the need for collaboration, and cross-border information sharing to build cyber resilience across entities to prevent systemic risk,” the report notes.

In a separate report, the global rating agency says data breach appears to be the biggest cyber risk for banks, with association to high losses, for both emerging and developed markets. (see table).

Hence, in all likelihood, cybercrime is likely to remain part of the risks that will always exist, more so as online transactions keep growing.

KPMG’S Ubaid points out that the increasing audacity of cybercriminals will keep this threat on an upward trend.

It is left to be seen if the rising tide of cybercrime in the Malaysian financial landscape will reduce following the wide publicity it is getting and the actions being taken by all concerned. 

-  StarBiz Stories by kirennesh Nai

 

Cybersecurity experts share their views

 

THE rise in cybercrime especially in financial services is a huge talking point today.

But is it something that was predicted to happen considering the rise of online banking services?

And is Malaysia being particularly hit hard?

Does the problem lie with the usage of less secure authentication methods such as Sms-based onetime passwords (OTPS) and what can banks do to fix the problem?

Some consultants share their views on these issues.

On the rise of online banking fraud. Ubaid Mustafa Qadiri, head of technology risk and cyber security for KPMG in Malaysia:

Cybercrime in banking or any other sectors will only continue to grow due to technological changes (including digitalisation) and organisational advancements with the introduction of new technology to improve process efficiencies.

Further, the increasing audacity of cybercriminals will also keep this threat on an upward trend.

With the accelerated rate of digitisation as a result of the pandemic, cybercrime has grown more rapidly than it would have, and criminals have evolved their techniques to target more enterprises and individuals to the point that banks have to implement more effective controls.

  Ho Siew Kei, cyber risk leader of Deloitte Malaysia:

 

This is an expected result, not only because of financial institutions’ rapid shift to online banking but a general trend as organisations continue to move towards digital transformation.

It is estimated that 70% of commercial crime cases now can be categorised as cybercrime cases.

Clarence Chan, partner, digital trust and cybersecurity at PWC Malaysia:

 

There is a difference between cybercrime originating from a successful customer scam, and a cybercrime due to lapses in banking IT infrastructure.

Generally, most of the cybercrimes reported lately are due to the former, rather than the latter.

Most of these crimes, if not all, were only successful because the customers gave away their OTP or credentials via the scammer’s phishing attempt.

However, it is fair to assume that local banking customers may eventually be targeted after a similar modus operandi was used against a leading bank in Singapore, which amounted to more than S$13mil (Rm42.07mil) in losses.

Is Malaysia being particularly hit hard?

Ubaid: Online banking fraud is happening everywhere in the world, and it is expected to grow as criminals keep evolving new techniques.

According to the latest statistics, online fraud accounts for 68% of commercial crime in Malaysia. As the use of financial technology (fintech) and e-wallets have rapidly increased over the last four years, online fraud cases have also risen as the rate of adoption increased.

Ho: As a whole, banking fraud is definitely a global phenomenon – various countries have reported a general upward trend in banking fraud over the recent years, and this would apply to Malaysia as well, as Malaysian banks continue down the path of digitisation.

Chan: Online banking fraud is prevalent throughout the banking industry globally where industry players are constantly faced with the challenge of combating constantly evolving fraud techniques.

Looking closer to home, Singapore faces similar challenges as the scamming scene is largely similar. Anti-scamming divisions within the Malaysia and Singapore police force have been actively collaborating in tackling transnational scamming syndicates, participating in Project Icons (International Cooperation On Negating Scams).

In 2019, Bank Negara also introduced the Risk Management in Technology (RMIT) Guidelines, one of the most comprehensive technology and cyber risk management guidelines in this region, with the aim of elevating the banking industry’s security measures and standards, to ensure that online banking services are kept safe and secure for customers.

Since then, plenty of efforts have been made by banking institutions to improve their cyber resilience.

Does the problem lie with the usage of less secure authentication methods such as Sms-based OTPS and what can banks do to fix the problem?

Ubaid: Yes, but it also depends on the central bank’s guidance and the banks’ capability to develop secure mobile banking applications (which requires investment to produce) that would be able to authenticate and authorise transactions more securely.

Recently, the central bank of Malaysia announced that financial institutions should take additional measures to block suspicious transactions, and customers to be asked to confirm if the transactions are genuine before they are unblocked.

Some of the advanced features include:

> Secure TAC

> QR code scan

> Mobile app authentication/ approvals for transactions

> Facial recognition/biometric authentication through banking application

> Device fingerprinting

Ho: OTP and Sms-type authentication is widely supported by most devices, especially older devices. Banks tend to focus on a wider userbase, and rightly so, so as to not cut out different market segments, notably those without access to more modern devices.

Bank Negara’s recent push for financial Institutions to migrate away from SMS OTP toward more sophisticated authentication methods is a step in the right direction. However, there will still be challenges for certain market segments who use the more traditional device at this point in time.

However, as older devices are replaced by devices that are affordable yet are more advanced and able to support the latest technology, we should see adoption of the advanced security features become commonplace.

We are seeing a shift towards soft tokens on mobile devices, where transaction authorisations are sent through push notifications. This means that transactions can only be authorised from a customer’s registered device, and only after the customer has authenticated, typically with their biometrics.

These methods will also see certain restrictions such as customers authentication being bound to a specific registered device.

Chan: In general, there is a visible trend in financial institutions adopting multi-factor authentication technologies which are no longer reliant on SMS OTP.

This includes in-app, certificate-based or biometric authentication, which provides a more secure authentication mechanism and prevents potential OTP hijacking or other phishing and scamming attempts.

With Bank Negara’s directive of moving away from SMS OTPS by 30 June 2023, we can only expect the adoption of these measures to be accelerated.

Is cost holding back Malaysian banks from enhancing their level of security?

Ubaid: Any upgrades, enhancements or technology integration, be it security or others, will always have a cost component as well as skills requirements attached to it.

Typically, each organisation has its technology plans and budgets based on its business strategy, and banks will follow their approved business plans along with budgets in accordance with the guideline from the central bank.

Ho: There is certainly a cost element to enhancing security. However it should be noted that cyber risk and customer fraud have in recent years become a top risk for banks and doing well to combat these risks can also be seen as a competitive differentiator.

While cost is a consideration, I would think that this is an area that banks are fully prepared to spend on given the focus around regulatory expectations, consumer protection and preventing cybercrime.

Chan: We don’t believe that cost is a particular factor holding Malaysian banks back from enhancing their level of security.

If we consider the results of Pwc’s 2023 Global Digital Trust Insights survey, in which banking and capital markets make up the second highest proportion of Malaysian C-suite respondents, 19% of respondents say that their organisation’s cyber budget is increasing by 6% to 10% in 2023.

Also worth noting, 49% of Malaysian respondents agree to a great extent that their cybersecurity budget is allocated well against the risks they face in the next 12 months.

However, banks can continuously explore and enhance their security posture to aid in curbing scams, focusing on educating customers to combat online banking fraud.

To build customer trust, banks should invest in continuous awareness efforts to ensure that their customers remain informed and updated on the latest scam tactics, and modus operandi observed in the industry. - StarBiz 

 

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Cybercriminals beware: public must be aware of how scams work, Putting the brakes on cybercrime

Monday 12 July 2021

Why should investors get out of the stock market?

 

3 influential factors that can make or break your stock market investment

My sole intention for writing this piece is to prevent investors from losing more money in the stock market.

Allow me to tell you briefly my back ground so that you can accept my advice to ask you to cash out from the stock market.

Dato Yap Lim Sen, my collegemate and I were the original founders of Mudajaya, Gamuda, IJM, IGB, Rubberex, MBM Resources, major controlling shareholder of Perodua Cars.

I have been investing in the stock market for more than 50 years. This is the first time I have practically sold all my stocks holdings and cashed out.

When you buy a stock, you hope to gain from share price increase and also dividend yield. In Malaysia all listed companies give out very small dividend. On record, Public Bank gives out the best dividend yield of about 5% per year. So, unless the stock price goes up, investors cannot make money.

What pushes the share up?

Among all the stock selection criteria such as account balance sheet, cash flow, NTA, no debt or cash rich etc, profit growth prospect is the most powerful catalyst to push up share price. Never buy any stock that has no profit growth prospect.

Why investors must believe in price chart?

Price chart cannot lie because it is a record of the daily trading. Down trend means there are more sellers than buyers in most days. Never buy a down trending stock.

A stock price can only go up if the company has reported increased profit. But if it reports reduced profit, its share price would drop because there would be more smart sellers than stupid buyers.

In the last 6 months, almost all the listed share prices have been dropping as shown on the KLCI Chart below. Why?


 

There are 2 main reasons for the listed companies’ share prices to drop.

1 Covid 19 pandemic

Covid 19 pandemic frequent lockdown restricts people’s movement and all listed companies’ business operation. Workers cannot go to work and business activities are reduced. As a result, almost all listed companies cannot report increased profit in the next few quarters until Covid 19 pandemic is fully under control. Many medical experts predicted that the pandemic will not be under control for at least 1 or more years. That simply means our stock market will be depressed for at least 1 or more years. The above KLCI chart shows that it has been dropping for the last 6 months and it will continue to drop for another 1 or more years.

2 Political Uncertainty

Investors do not like political uncertainty. In the last general election about 2 years ago, Pakatan Harapan won the right to form the Government and Dr Mahathir became the Prime Minister. Within a couple of months, he resigned suddenly and Muhyiddin became the PM by the back door. Currently he is seriously terminally ill with cancer in KL Hospital. Apparently, he has pancreatic cancer.

Who will be the next PM?

As you know, Politicians make rules and regulations which often affect business operation and their balance sheets which is creating more difficulties in making investment decisions.

That is why many investors especially foreign institutional investors are constant net sellers and some of them have already left the stock market. 

Yesterday I posted my article namely “A safe strategy during the pandemic” in which I said the Covid 19 pandemic lockdown is affecting everybody’s movement. Workers cannot to go to work and all business operation will naturally slow down. Almost all the listed companies will not be able to report increased profit in the next few quarters until the Covid 19 pandemic is fully under control which will take at least 1 or more years.

For example:

All the steel products manufacturers have reported increased profit in their latest quarter due to the steel price increase. Currently, due to Covid 19 pandemic lockdown, workers cannot go to work to make steel products and construction workers also cannot go to work. Contractors will not require to buy steel products. As a result, all the steel products makers will report reduced profit in the next few quarters. Many smart investors already could foresee this situation. That is why Leon Fuat, the most profitable steel company price chart is showing down trend as you can see below.


 

Leon Fuat’s last traded price is 99 sen and its latest EPS for quarter ending March 2021 was 11.65 sen. Even if I assume its EPS for the next 3 quarters is the same as 11.65 sen, its annual EPS will be 46.6 sen. Leon Fuat is selling at PE 2.

Other Industries also suffer the same fate

In fact, almost all other industries also suffer the same fate as steel companies. For example, Supermax and Top Glove have to close down a few times because the government authorities found Covid 19 cases in their factories.

Supermax price chart below:

 

Investors must always remember price chart is the more important investment consideration than financial analysis. Down trend price chart means there are more smart sellers than stupid buyers.

Statistics shows that in the stock market, there are about 70 % of investors lose money, 10% of investors break even and only 20% of investors are real winners. But under the current condition all investors including myself are losing money.

All investors must examine their track record to their performance. Even if they have been winners, they should sell all their holdings as soon as possible before they lose more money and get out of the stock market completely.

My mistake

I must admit my mistake in recommending Leon Fuat recently because I did not foresee earlier how Covid 19 lockdown and our political uncertainty can cause serious damage to the stock prices. That is why I sold practically all my stock holdings and cashed out of the stock market.

A best strategy during the pandemic for all investors is to cash out because all listed companies will not be able to report increased profit in the next quarters..

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Sunday 25 June 2017

Money game scourge

Easier option: Poor experience with regulated investment product providers may be the reason for investors to go for ‘alternative’

Poor wealth management experiences fuel money games


OVER the past 2 months, it was virtually impossible to pick up any newspaper and not read reports about the money game phenomenon that has taken the media by storm.

It is as if the Pandora’s Box had been suddenly flung open by the exposé of JJPTR, leading to other similar schemes coming to light.

The victim profile ranges from white-collared professionals and savvy businessmen to senior citizens and housewives. It would appear as if just about anyone from different walks of life could be susceptible to these money schemes.

It is easy for observers and bystanders to pin the blame on the investors for getting themselves in a sticky situation. After all, if we apply the caveat emptor (buyer beware) principle to other types of goods and services, the investors should have clearly known the risks of subscribing to these money games and therefore should have been aware of the possibility of losing their investments.

So, what caused groups of people to lose their common sense when it comes to money games?

Scams come in many shapes, sizes and forms but look closely and you will see that they all have many things in common in terms of the modus operandi and the people they seem to attract. From JJPTR and MBI International right at our doorstep to China’s Nanning investment scheme and the most notorious Ponzi scheme of all times – the Madoff scandal, all these scams preyed on innate human weaknesses and appealed to investors’ desire to grow their wealth.


Many would be quick to label these investors as greedy or gullible, but I beg to differ. I see nothing wrong with wanting to achieve financial freedom and get higher investment returns. The people who invested and lost in these scams are not multi-millionaires with ample financial resources. They are average Malaysians who have worked hard and saved their money for a rainy day, only to see their nest egg disappear into thin air. What drove them to place the precious results of their blood, sweat and tears into unregulated investment schemes?

I am convinced that the reason stems from the investors’ poor experience with regulated investment product providers.

The so-called ‘push’ factor

There is a mismatch of what consumers need and what financial institutions are trying to sell. Consumers want guidance on how to use regulated investments as a means to grow their wealth with high certainty and achieve financial freedom.

The general public sees banks as an easy, accessible channel to obtain advice on personal finance and investment matters via wealth management services. There is no issue with legitimacy as the array of financial products and services available through banks are duly approved by the regulatory authorities.

The problem arises when investors are not getting what they need, which is advisory support, from their current wealth management providers. More often than not, investors feel overwhelmed by the choices available in the market. Worse still, investors do not know what action to take when their investments lose money. It is not uncommon to find that the wealth management providers are very attentive and proactive in recommending options; but once the sales is concluded, the investor is basically left to his or her own devices.

As a result of the lack of hand-holding or after-sales service, some investors may find that rather than growing money, they end up losing 20%-30% of their capital. The sheer irony of it is that because of the experience of losing money, they now perceive regulated investments as highly volatile and uncertain, and ultimately lose faith. I have personally encountered clients who harbour such misgivings about unit trusts, that they would bluntly tell me right from the initial meeting, not to propose such options to them.

I realised then the extent to which poor experiences with wealth management providers can lead to misplaced biases against certain investment vehicles even though investors could benefit from the right ones. When disillusioned investors turn their heads elsewhere, this is when they discover “alternative” investment options. And many end up falling for money games because they are sold on the idea of fixed return investments perceived to be low risk, coupled with the promise of better returns.

In this instance, the “push” factor, i.e. the unmet financial needs of consumers, which contributed to investors subscribing to shady schemes, has equal bearing to the “pull” factor (attraction) of these money scams.

“I am like any other man. All I do is supply a demand.” – Al Capone, American mobster

As with most goods and services that are detrimental to our well-being (e.g. junk food, cigarettes, gambling, etc), it is consumers’ demand for them that drives their industry and makes them thrive. Without customers, these shady businesses would naturally die off.

The ability of the money games to proliferate boils down to the “smart” business acumen of the operators to “fill the gap” so to speak. By offering an alternative investment scheme at a time when the market is slow and when many investors are experiencing losses, these money games are seen as a sudden golden ticket towards becoming rich. However, as we have seen, the golden ticket eventually loses its shine and the investors are left holding nothing but a worthless scrap of paper.

Therefore, there would be fewer victims of money games if the wealth management industry as a whole were to step up and reinvent themselves into a genuine one-stop financial centre to help their clients address all financial and investment issues at various points of their lives.

When the grass on one side is always greener, the rest will not matter

In order to ensure that they are seen by clients as the “go-to” person for all financial and investment related concerns, wealth management providers will need to exceed expectations and to a certain degree, over-deliver on their current role.

Wealth managers could assist clients to evaluate various investment proposals to determine its suitability and guide clients to use regulated investment vehicles to invest in various asset classes such as equities, bonds, REITs and foreign investments to grow their money effectively. They could also play the role of a financial bodyguard to help investors fend off scams and illegitimate investments.

In an ideal world, wealth managers will set aside sufficient time and effort to understand the client’s financial position in a holistic manner. They will prepare a tailored and dynamic plan with milestones and checkpoints to help monitor and review progress.

To my peers in the wealth management industry, I would say, cut the lip service and let’s get serious about managing and growing wealth for our clients.

When more and more investors realise that they are able to count on their wealth management providers for all the required support they need to achieve their financial end game, then money games will no longer have room to take root.

Money & You Yap Ming Hui

Yap Ming Hui (ymh@whitman.com.my) is a bestselling author, TV personality, columnist, coach and host of Yap’s Money Live Show online. He feels that the financial world is getting too complicated for everyone, and initiated a weekly online show to address the issues.For more information, please visit his website at www.whitman.com.my


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Friday 8 April 2016

1MDB business model relied on debt to form capital is not sustainable


PETALING JAYA: 1MDB was unsustainable from the start, relying heavily on financial assistance to stay afloat.

The PAC observed that 1MDB’s capital financing structure and financial performance were both unsatisfactory.

“1MDB relied on debt (bank loans, bonds and sukuk) to form its capital, a chunk of which had been sanctioned or supported by the Government.

“Initially, the debt stood at RM5bil in 2009, and went up to RM42bil, compared to its assets of RM51bil in the financial year ending March 31, 2014, and it spent RM2.4bil to pay off interests.

“In January 2016, its debt was RM50bil, compared to its assets of RM53bil, where 1MDB spent RM3.3bil to pay off interests between April 1, 2013, and March 31, 2015,” said the report.

The PAC report also stated that 1MDB had paid RM3.3bil in interests on the loans it took from April 1, 2014, to March 31, 2015, which 1MDB said had yet to be audited.

“It is obvious that the debt amount and repayment of interest are too high compared to the company’s cash flow,” said the committee.

1MDB had also heavily relied on the refinancing exercise to settle matured debts and take new loans, which were used to settle interests on previous loans, among others.

The PAC report also found that 1MDB began facing an imbalance in cash flow in November 2014, five years after it started operations.

“The management and board of directors relied on the Initial Public Offerings (IPO) of Edra Energy Berhad to generate funds, but the IPO could not be carried out,” said PAC.

In the same month that year, 1MDB announced its first loss of RM665mil, resulting in its inability to pay off its almost matu­ring debts which stood at RM2bil, through its refinancing exercise.

“The company’s business model is overly dependent on loans and this caused a burden on the company as it did not have enough income to sustain operational costs and pay off its loans,” read the report.

The PAC also said that as a state investment arm, 1MDB should have focused on best practices, and raised examples of weaknesses in its administration.

“For instance, the board of directors was too dependent and often accepted explanations by the management without delving into the details.

“Indeed 1MDB’s experience is a lesson to all government-linked corporations on the importance of effective administration and integrity,” said the committee. - The Star/ANN

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Malaysia's 1MDB's questionable accounts

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Thursday 4 June 2015

Malaysia's 1MDB's questionable accounts


Summary raises  questions over spending. It shows where money went but fails to debunk critics.

In acquiring assets of RM13.7 bil, it incurred RM5.4 bil in cost of financing working capital and foreign exchange cost  between 2010 & 2014 - Accountant.

PETALING JAYA: Controversial 1Malaysia Development Bhd (1MDB) has given a brief summary of how it has incurred a RM41.8bil debt bill in a space of five years.

While the explanation showed where the money raised has gone to, it did not debunk criticism on why a sum of RM15.4bil raised locally and some of it guaranteed by the Government, are placed with funds outside the country for purposes of investments and as security deposit for loans.

It also reveals a staggering RM4.5bil that 1MDB has incurred in financing and capital cost and RM900mil in foreign exchange cost, which accountants describe as a sizeable amount that needs to be explained further.

1MDB president and group executive director Arul Kanda Kandasamy said the clarification on the use of its RM42bil debt was necessary to address allegations that RM27bil was “lost” or “missing”.

“In recent weeks, there has been much speculation about the use of RM42bil of debt raised by 1MDB, and more specifically that RM27bil of the debt proceeds are allegedly “lost” or “missing”.

“We provide a summary of what the RM42bil debt has been used for, information that is fully disclosed in 1MDB’s audited and publicly available accounts from March 31, 2010 to March 31, 2014.


“We trust this clarification will help to clear any confusion on this matter,” he said in a statement.

One of the strongest critics of 1MDB is former Prime Minister Tun Dr Mahathir Mohamad who has said that he could not account for some RM27bil of the RM42bil in debts carried by 1MDB.

In the summary, 1MDB for the first time revealed how much it has placed as investments with foreign funds and amounts deposited as security with Middle East funds for guarantees on loans.

The funds for investments are placed with Brazen Sky that has received RM6.1bil and GIL Funds that is holding RM5.1bil.

A sum of RM4.2bil has been placed with Aabar Investments Deposits as security for a US$3.5bil(RM12.9bil) bond issued by 1MDB in 2012. The bonds were issued when 1MDB acquired power plants from T. Ananda Krishnan’s Tanjong Group and the Genting Group in 2012.

The purchase of the power plants was the biggest item in 1MDB’s shopping list. However, the power plants came with a debt of RM6bil, which means 1MDB incurred a cash outlay of only RM12bil to buy the assets, although it lists RM18bil in its summary.

The next biggest item in the Finance Ministry-sponsored fund is a sum of RM1.7bil it paid to acquire three parcels of land – the Tun Razak Exchange and Bandar Malaysia in Kuala Lumpur and 234 acres (94.6ha) in Air Itam, Penang.

1MDB refuted allegations that the three parcels of land cost RM2.1bil, pointing out that the amount incurred was RM1.7bil.

The fund said it paid RM200mil for the TRX land and RM400mil for 495 acres (200ha) in Sungai Besi that is now known as Bandar Malaysia.

Both parcels of land are among the last pieces of large developments left in the city and had been the target of several prominent groups before it was given to 1MDB without any competitive tender.

Since 2011, 1MDB has re-valued the 72-acre (29ha) TRX development and the Bandar Malaysia parcel several times to reflect its soaring valuations.

The two developments now carry a combine value of RM4.3bil.

However, an accountant said the cost of financing and working capital incurred by 1MDB to acquire the assets and run its operations at RM4.5bil was on the high side.

“It raised debts to acquire power plants and three parcels of land. The other amounts raised were largely placed with fund managers as investments or as security deposits. Investments placed with fund managers should give returns and not incur financing cost.

“Similarly, the deposits should also give returns and not incur financing cost,” said the accountant.

The accountant pointed out that stripping out the investments placed with the funds outside Malaysia and the debt of RM6bil inherited when acquiring the power plants, the actual cash outlay 1MDB incurred in acquiring the power plants and three parcels of land was RM13.7bil.

“In acquiring assets of RM13.7bil, it incurred RM5.4bil in cost of financing, working capital and foreign exchange cost between 2010 and 2014.

“That needs further explanation. Without a breakdown in how much was the finance cost and working capital it is difficult to say whether the funds were well utilised,” said the accountant.

By M. Shanmugam The Star/Asia News Network

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Wednesday 3 June 2015

Regulators act on complaints: MIA to name and shame errant professionals

We have a due process to investigate any complaints made against any of our members,” MIA chief executive officer Ho Foong Moi (inset pic) told StarBiz.

PETALING JAYA: The auditors who signed off on the controversial 1Malaysia Development Bhd (1MDB) accounts will be investigated by the Malaysian Institute of Accountants (MIA).

Confirming this to StarBiz, MIA chief executive officer Ho Foong Moi said this was following complaints made by an Opposition Member of Parliament (MP).

DAP’s Petaling Jaya Utara MP Tony Pua had made two complaints to MIA, one in March and another in May.

“We have a due process to investigate any complaints made against any of our members,” Ho said.

MIA would not say when it aimed to complete the investigation. Ho said the deadline would depend on many factors as the case was complex.

“It also depends on whether we can obtain the relevant documents as well as prompt responses from the relevant parties,” she said.

On how impartial the probe would be, given that several council members of the MIA also work for three firms or the Accountant General’s office – who are involved with 1MDB – Ho said that any conflicted party would not be involved in the MIA investigation.

Three of the Big Four accounting firms were at one time or another working for 1MDB. The three are Ernst & Young, KPMG and Deloitte. The Accountant General’s Department is an authority under the Finance Ministry and advises the minister on who to appoint to the MIA council. Nine out of the MIA’s 29 council members work for the three firms or the Accountant General’s office.

The RM42bil debt chalked up by 1MDB has been the interest of many, but this is the first time the MIA is stepping in.

There have been previous calls for it to check on the auditors. The chairman of the Public Accounts Committee, which is holding an inquest into 1MDB, said he had found some accounting issues.

Datuk Nur Jazlan Mohamed said a few major accounting principles seemed to have been stretched to achieve the unqualified opinion in 1MDB’s 2014 accounts.

He called for regulators like the MIA and the Audit Oversight Board to step up and enforce the law. But the board has made it clear that it has control only over auditors of public listed companies.

The MIA, on the other hand, is a regulator for the accountants in Malaysia. The body has the power to investigate and punish members. It can even bar members from practising. But Ho stressed that the body can investigate only individuals, and not firms.

When the misconduct is less serious, the MIA can reprimand or fine the member. The MIA can also suspend a member for up to three years.

Move to name and shame errant auditors

PETALING JAYA: The regulator of audit firms in Malaysia has raised the issue of firms not fixing problems it had raised during inspections.

To put pressure on such firms, the Audit Oversight Board (AOB) will to make its inspection report public.

“We are concerned that audit firms may have started to be complacent with the deficiencies and issues raised in our inspection reports and have not given the required attention to the effectiveness of their remediation plans as indicated earlier to the board,” said executive chairman Nik Mohd Hasyudeen Yusoff in the AOB annual report 2014.

He noted that while firms have been enhancing their quality control, the board had found little actual improvement.

Last year, the board set stricter conditions for registration. It refused an application for recognition by a foreign audit firm because that firm failed to meet the board’s standards.

Also, the board acted against another firm for failing to meet critical measures on independence.

The board said new and revised standards next year would be a possible game changer to raise the quality of auditing and financial reporting in the country.

It was referring to the rules from the International Auditing and Assurance Standards Board that take effect on Dec 15, 2016.

Nik said these new standards would require auditors to put in key audit matter disclosures in their reports.

This would make the reports tailored to the clients rather than the mostly standard terms and boilerplates.

The board expects this to give more insights “of the risks surrounding a particular reporting entity and some of this may have market impact”.

The annual report said there was no major change in the number of registered and recognised audit firms and individual auditors.

Six major audit firms and four others audited 957 public-interest entities (PIE), covering 98.6% of the market capitalisation of public listed companies in Malaysia in 2014.

Last year, the AOB acted against a firm and two individual auditors.

It was the first time it had barred a firm from accepting any PIE as a client for 12 months. The firm also had to pay a penalty of RM30,000. In the past, the penalties were limited to a reprimand and the highest fine was RM10,000.

Regulator AOB expects and has mechanism to ensure audit firms strictly adhere to the laws

PETALING JAYA: The Audit Oversight Board (AOB), which has taken enforcement actions against two individual auditors and an audit firm last year, expects audit firms to adhere strictly to the laws.

“AOB has in place a robust enforcement mechanism with sufficient safeguards to ensure that fairness and justice will prevail,” it said.

From April 2010 to December 2013, eight auditors were sanctioned for failure to comply with the recognised auditing standards in the performance of their audit of the financial statements of public-interest entities (PIE) and failure to comply with the ethical and professional standards of the Malaysian Institute of Accountants by-laws.

In 2014, action was taken against two auditors and one audit firm.

AOB has prohibited Wong Weng Foo & Co from accepting PIE clients for 12 months. The audit firm was also imposed a penalty of RM30,000.

The AOB has also rapped two registered auditors, Lim Kok Beng of Ong Boon Bah & Co and Chan Kee Hwa of Khoo Wong & Chan, for non-compliance.

They were reprimanded for not complying with the International Standards on Auditing while auditing the financial statements of public interest entities.

In addition to the reprimand, a penalty of RM10,000 was imposed on Lim

Salaries of audit firm employees higher than fees



PETALING JAYA: For the first time in two years, growth in employee costs has outstripped audit fees among Malaysian firms.

While the growth in audit fees has dipped by a quarter from 12% to 9% in the past year, the growth in staff cost has remained constant for the past two years.

There has been higher headcounts in the past year, which rose by 6.6%, according to the Securities Commission’s Audit Oversight Board’s (AOB) annual report 2014. “Based on three years of analysis of the top 10 audit firms, salary costs continue to increase at a higher rate compared with the growth in the audit fees, which is a challenge for audit firms,” the board said.

Staff turnover was also another concern.

While the overall turnover has stabilised at about a quarter of the staff each year, the non-executives were leaving at a higher rate.

“This is a concern as turnover at this level may indicate the lack of attractiveness of audit as a career among younger accountants, which could be detrimental in the long term,” it said.

The report is compiled from 10 top audit firms, which collectively audited 957 public-interest entities (PIEs) covering 98.6% of the market capitalisation of public-listed companies in Malaysia.

The number of registered audit firms had decreased from 83 in 2010 to 52 last year.

The number of registered auditors has remained stable for the past five years. The number of registered auditors rose to 304 individuals in 2014 from 302 in 2013.

The annual report, AOB’s fifth, was released yesterday. AOB also questioned audit deficiencies for major firms. AOB inspects accounting firms regularly to promote and develop an effective audit oversight framework and promote confidence in the quality and reliability of audited financial statements in Malaysia.

Sources: The Star/Asia News Network

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Monday 18 August 2014

Let us talk money, honey!



IN the old days of match-making, parents ask their prospective son-in-law about his income so that they can assess if he was able to support their daughter comfortably or at least to the level of what she’s been used to.

I suppose this was to ensure a longer lasting marriage.

While having a lot of money is not the cure-all to marital ills, financial issues are apparently a predictor of marriage breakdowns, according to a study done by Dew, Britt and Huston titled Examining the Relationship Between Financial Issues and Divorce.

In modern times, talking about money is a bit insensitive - rendering the person asking like a gold digger.

But perhaps it is actually something practical that we should be talking about to ensure the relationship has another one-up chance of survival.

After all, we are so hung up on making sure our partner has similar interests, complementary goals, good emotional intelligence, and some intelligence quotient. Surely the financial alignment is important,too.

While I do agree that it is quite hard to ask bluntly how much a person is earning on the first or second date,it maybe all right to ask:

1)What is your money management style? Do you pay your self first or last?

2)What percentage of your income do you save?

3)How are you planning for retirement?

4)Which do you think is more important - earning more money or saving more money?

5)How do you feel about sharing financial information with your partner?

6)On a scale of1to 10, how do you think you fare in the money manager role?

7)How do you feel if you have less than three months’ emergency money?

These questions may get you a lot of different responses, and from these responses you get a better gauge about your prospective partner’s view on personal finance.

After all, it’s not about how much money is made but rather how well that money is managed that is the most important.And also, this may help avert a marital disaster.




By AMELIA HONG AND
SENIOR VICE-PRESIDENT OF
SUCCESS CONCEPTS LIFE PLANNERS
The writer can be contacted info@successconcepts.biz
 Archives | The Star Online.

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