Setting the Record Straight: Cash Trust, the SC’s New Practice Note, and the Unfair Demonisation of an Entire Industry

By Dato’ Dr. Siva Ananthan

The recent Focus Malaysia article “Cash trust pitfalls: A regulatory blind spot or marketing loophole?” (July 25, 2026), written by Aida Lim Abdullah, makes several important observations about investor protection and regulatory gaps. However, it commits a fundamental mistake that undermines its credibility: it conflates investment-style trust schemes that promise guaranteed high returns with genuine cash trust services used for estate planning and asset preservation—and then proceeds to tar the entire trust industry with the same brush.This is not merely imprecise. It is factually and legally incorrect.

1. The Core Confusion: Investment Products Are Not Trust Services

The article focuses exclusively on schemes that guaranteed high fixed annual returns, solicited capital for commercial investment activities, and ultimately failed. These were investment products masquerading as trusts—not legitimate cash trust services.

A genuine Cash Trust, as practised by reputable trust companies for decades, is an estate planning and asset protection tool. The settlor places cash with a trustee to be held and distributed to named beneficiaries upon specified events: death, education expenses, medical emergencies, or retirement needs. No guaranteed returns are promised. No principal is placed in risky investments. The trustee’s duty is safekeeping and asset preservation.

The article’s failure to distinguish between these two fundamentally different activities is its central analytical flaw.

2. The Legal Framework: Trust Companies Are Not Unregulated

The article implies that trust companies operate in a “regulatory blind spot” with “no one watching.” This is factually incorrect.

The Trust Companies Act 1949 provides for the registration and regulation of trust companies in Malaysia. Section 3 of the Act stipulates that any public company incorporated in Malaysia may apply to the Registrar of Companies to be registered as a trust company, subject to conditions including:

– a minimum authorised capital of RM300,000;

– RM150,000 bona fide paid-up capital;

– a deposit of RM100,000 in securities with the Accountant General; and

– restrictions on the company’s objects to those set out in section 8 of the Act.

The Trustee Act 1949 (Act 208) imposes fiduciary duties on trustees. Trustees must exercise “all due diligence and vigilance in carrying out his functions and duties” and act “honestly, reasonably and fairly in the best interest of the beneficiaries”. Section 4 of the Trustee Act governs the duty to invest trust assets in a prudent and conservative manner.

These are not paper obligations. They are legally enforceable fiduciary duties. A trustee who breaches these duties can be sued for breach of trust and held personally liable for losses.

To claim that trust companies operate in a “regulatory vacuum” ignores 77 years of continuous statutory regulation.

3. The SC’s Practice Note No. 2/2026: What It Actually Says

The article hails the Securities Commission’s May 2026 Practice Note as a “major milestone” that now brings clarity to the sector. This is welcome but the article fails to mention the most important qualification in the Practice Note—a qualification that directly undermines the article’s implied call for all trust companies to be SC-licensed.

Practice Note No. 2/2026, issued on 22 May 2026, exempts trust companies registered under the Trust Companies Act 1949 from licensing and registration requirements under section 58(2) of the Capital Markets and Services Act 2007 if the regulated activity they carry on is “solely incidental” to a conventional trust business.

The Practice Note defines a “conventional trust business” by the following features:

– Purpose: Estate administration, succession or legacy planning.

– Beneficiary: For the benefit of beneficiaries, excluding where the settlor is the sole beneficiary.

– Tenure: Based on the objective of the trust, not a fixed investment period.

– Returns: Estimated dividends are not stated in the trust deed; profits are typically reinvested for wealth preservation.

– Trust deed: Tailored to the settlor’s instructions and needs.

The Practice Note explicitly states that a trust company offering estate administration and private trust services for succession or legacy planning—services “not primarily intended for investment or profit but for wealth preservation”—falls within this exemption.

Critically, the SC has further clarified that if an investment-style trust company invests only in non-capital market products—such as fixed deposits, real estate, investment-linked insurance, and gold—it does not fall under securities laws and is not under the SC’s purview.

This means:

– Pure cash trust services for estate planning and succession—with no promised returns, no capital market investments, and no collective investment scheme structure—remain outside the SC’s licensing regime.

– The SC’s new rules apply only to trust structures that effectively operate as capital market investment products—not to conventional cash trust services.

The article’s failure to acknowledge this critical distinction is a serious omission. It implies that all cash trust products are now (or should be) SC-licensed. That is simply not what the law says.

4. Reputable Trust Companies: The Silent Majority

The article focuses exclusively on the failed schemes involving 1,800 investors and RM100 million in losses. It does not once mention that there are dozens of trust companies in Malaysia that have operated for decades without a single investor loss due to structural failure.

UBB Amanah Berhad has been in the trust industry since 1988—over 30 years—and manages more than RM2.5 billion in assets under administration. Its cash trust products have operated since 2013 with full compliance. The company has taken legal action against those who maliciously equated it with Ponzi schemes—a clear indication that it takes its reputation and legal obligations seriously.

Pacific Trustees Berhad, incorporated in 1994, is registered as a trust company under Section 4 of the Trust Companies Act 1949 and is a registered bond trustee with the Securities Commission Malaysia. It is authorised to act as trustee for unit trust funds and Real Estate Investment Trusts.

AmanahRaya Trustees Berhad, a subsidiary of the government-owned Amanah Raya Berhad, has served as trustee for the first unit trust in Malaysia since 1966 and manages over RM600 billion in assets. It is registered with the SC as an eligible trustee for Collective Investment Schemes, Private Retirement Schemes, and Corporate Bonds and Sukuk.

These are not fly-by-night operators. They are institutionally robust, professionally managed, and legally compliant fiduciaries that have served Malaysian families for generations.

To ignore their existence and imply that all trust companies are operating in a “grey area” is not just unfair—it is journalistically irresponsible.

5. The Real Problem: Misleading Marketing and Rogue Distributors

The article correctly identifies that the failed schemes were distributed through “trusted networks”—insurance agents, wealth planners, and referrals—who told investors that SSM registration equated to regulatory oversight.

This is indeed a problem. But it is a marketing and distribution problem, not a structural problem with the trust industry itself.

Section 3 of the Trust Companies Act 1949 requires registration with SSM. SSM registration is an administrative incorporation process—it confirms that a corporate entity exists on paper. It is not, and has never been, an endorsement of investment safety by Bank Negara Malaysia or the Securities Commission.

The solution is:

– Criminalise misleading marketing that equates SSM registration with regulatory oversight;

– Require clear disclaimers on all trust marketing materials; and

– Enforce existing laws against unlicensed capital market activities under the CMSA 2007.

The solution is not to imply that every trust company is predatory or that the entire cash trust sector is a “regulatory blind spot.”

6. What the New Trust Companies Bill Should Do—And What It Should Not Do

The government is finalising a new Trust Companies Bill. This is welcome. It should:

1. Define clearly what trust companies may and may not do;

2. Significantly increase the authorized capital to at least RM5 million;

3. Require disclosure of true owners behind trust businesses;

4. Strengthen governance and administrative requirements; and

5. Set out procedures for winding up or dissolving trust companies.

But the Bill must not impose SC licensing requirements on pure cash trust services that do not involve capital market activities, do not promise returns, and do not operate as collective investment schemes. To do so would be to regulate estate planning as if it were fund management—a regulatory overreach that would burden legitimate fiduciaries and increase costs for Malaysian families seeking legitimate succession planning tools.

Conclusion

Judge Each Company by Its Compliance, Not by Sensationalist Generalisations

The investors who lost their savings to unsustainable cash trust structures deserve justice. The rogue operators who misled them deserve prosecution. The regulatory gaps that allowed this to happen deserve to be closed.

But reputable trust companies—UBB Amanah, Pacific Trustees, AmanahRaya, and others—have served Malaysians faithfully for decades. They have nothing to hide. They welcome the new regulations. They have consistently called for clearer rules to distinguish legitimate fiduciaries from fraudulent operators.

What they do not deserve is to be lumped together with the very operators they have distanced themselves from.

The article concludes that “the single most powerful tool in investor protection is the question you ask before you sign.” We agree. But we would add this: the single most powerful tool in journalistic integrity is the distinction you draw before you write.

Judge each trust company by its compliance, its track record, and its adherence to the law—not by sensationalist generalisations that confuse legitimate estate planning with fraudulent investment schemes.

Dato’ Dr Siva Ananthan is a graduate in Law from the University of London and is a 40 year veteran of the legal fraternity, having founded Advance Tertiary College (ATC) in 1987. He is a renown jurist and has served as a Governing Council Member of the ASEAN Law Association, as a President of the National Association of Private Educational Institutions in Malaysia and as a Director of the Pan Pacific Association for Private Education. He is also the Honorary Advisor to the Malaysia Wills & Trusts Association.