23/04/2026
《 Lawful Cash Trusts vs. Insurers’ Commercial Suppression — Authoritative Malaysian Trust Law Analysis 》
*The SC Has No Jurisdiction Over Pure Cash Trusts – Insurers’ Panic Move Exposes Regulatory Illiteracy, Not Prudence*
This is a response to the article entitled, “Insurers restrict agents’ involvement in cash trust schemes ahead of regulatory oversight” (The Edge Malaysia, 19 Apr 2026).
The recent circulars issued by major insurers – Hong Leong Assurance, Prudential, Great Eastern, and Tokio Marine – purporting to bar agents from any involvement in cash trust schemes are not prudent risk management. They are a legally incoherent overreaction driven either by deliberate fear mongering or a shocking ignorance of Malaysia’s trust and securities laws.
Let us state this clearly - The Securities Commission (SC) has no regulatory authority whatsoever over licensed trust companies providing pure cash trust services that do not involve capital market products. The insurers’ claim that these schemes operate in a “regulatory grey area” or “no man’s land” is a false narrative. The law is clear, and it has been clear for decades.
*1. The SC’s Jurisdiction Ends Where the Trust Companies Act Begins*
The article correctly notes that the SC is finalising a framework under the Capital Markets and Services Act 2007 (CMSA). But this framework applies only to trusts that invest in capital market products – securities, bonds, unit trusts, derivatives, and the like.
What the article downplays – and what the insurers conveniently ignore – is that a cash trust scheme that merely holds funds, operates a money-lending arrangement, or invests in non-capital market instruments (e.g., private commercial paper, short-term financing, or Shariah-compliant cash placements) falls squarely outside the CMSA.
Such trust companies are governed exclusively by the Trust Companies Act 1949 (TCA 1949) , administered by the Minister of Finance (via the Companies Commission, not the SC). The TCA 1949 is a standalone regulatory regime that licenses, supervises, and disciplines trust companies. The SC has no cross-over powers unless capital market products are involved. That is a statutory fact, not an opinion.
*2. The “Regulatory Grey Area” Is a Myth Created by the SC Itself*
Market participants have long tolerated the SC’s regulatory creep, but the law does not support it. The SC’s own amendments to the CMSA effective 1 January 2026 were necessary precisely because the SC previously had no power over trusts. The fact that the SC is now “asserting oversight” does not mean it legally possesses it for pure cash trusts. Assertion is not jurisdiction.
Until a trust company actively trades in listed securities, manages a unit trust fund, or offers a collective investment scheme under Schedule 2 of the CMSA, the SC remains a bystander. The Ministry of Finance’s own statement – that the framework applies to cash trusts that invest in capital market products – is the controlling legal boundary. Anything beyond that is ultra vires.
*3. Insurers’ Circulars Are a Disguised Agent Control Mechanism*
The insurers claim to be protecting customers from “unlicensed activities” and “misleading representations.” But this is transparently disingenuous. A licensed trust company under the TCA 1949 is not “unlicensed” – it holds a valid licence from a different statute. The real issue is that cash trusts have become competitive threats to insurance savings and investment-linked products.
Agents who focus on cash trusts are generating higher volumes with lower regulatory friction. The insurers are not acting out of concern for the public. They are acting out of commercial desperation to recapture agent mindshare. The circulars are a disguised non-compete mechanism, dressed up as regulatory compliance.
*4. Legal Consequences for Insurers Who Overreach*
By instructing agents that “even informal referrals could be construed as endorsement” of an illegal or unregulated activity – when the activity is lawful and regulated under the TCA 1949 – the insurers are potentially exposing themselves to tortious liability for restraint of trade, defamation of trust companies, and unlawful interference with their agents’ independent business activities.
If an Agent refers someone to a cash trust arrangement, an insurer cannot simply prohibit that activity without breaching agency agreement principles of proportionality and legality. Such blanket bans may be challenged as unreasonable restraints under the Contracts Act 1950.
*5. Insurance Trusts Are Cash Trusts at the Moment of Payout*
The insurance companies attempt to draw a rigid, permanent distinction between their insurance trusts (which they deem prudent) and other cash trusts (which they baselessly label as legally suspect). This distinction collapses the moment a claim is paid.
The reality is that the insurers do not want their agents or policyholders to understand that an Insurance Trust Is an Incomplete or Unfunded Trust. When a life insurance policy or family takaful certificate is assigned to a trust, the trust is typically unfunded during the policyholder’s lifetime. The trustee holds only a contractual right to receive future proceeds. No cash sits in the trust.
The moment the insurer releases the death benefit ( be it RM500,000 or RM1,000,000), the Trust becomes a pure Cash Trust.
Why Is the Same Cash “Legal” Before Payout but “Grey” After?
If a cash trust that merely holds funds is supposedly operating in a “regulatory grey area” (the insurance companies' own phrase), then every insurance trust after payout is standing in that same alleged grey area.
The insurance companies cannot have it both ways. On the one hand they actively promote insurance trusts for estate planning, using the new RM1,000 stamp duty cap as a selling point.On the other hand they issue circulars suggesting that pure cash trusts are problematic or unregulated.
An agent who recommends an insurance trust is, by definition, recommending a mechanism that inevitably becomes a cash trust upon the policyholder’s death. If the insurance companies truly believed that cash trusts posed legal risks to agents, they would be obligated to warn against insurance trusts as well. They do not. That selective silence is the clearest possible evidence that the circulars are commercially, not legally, motivated.
The insurers’ attempt to quarantine cash trusts as uniquely risky while embracing insurance trusts is legally incoherent. Every insurance trust matures into a cash trust. If cash trusts are lawful (and they are, under the TCA 1949), then insurance trusts remain lawful throughout their lifecycle. If cash trusts were unlawful (which they are not), then insurance trusts would become unlawful upon payout – an outcome no insurance company has dared to state in writing.
Agents should understand that the insurance companies are not protecting them from the law. They are protecting their distribution channels from competition.
*6. The Real Warning Belongs to the SC and the Insurers*
The SC should confine itself to capital market products. Its stated intention to regulate pure cash trusts is legally untenable unless Parliament explicitly amends the CMSA to override the TCA 1949 – which it has not done. The Ministry of Finance has confirmed the framework applies only to capital market investments. Any SC enforcement action against a pure cash trust company would be met with a successful judicial review.
As for the insurers: stop hiding behind “regulatory concern.” If you believe cash trusts are illegal, name the provision of law they violate. You cannot, because none exists. Your circulars are not compliance – they are cartel-like coordination to suppress competition. The public and your own agents deserve better than this display of legal illiteracy disguised as prudence.
*Conclusion*
The cash trust industry operating under the Trust Companies Act 1949 remains lawful, regulated, and entirely outside the SC’s remit – provided it avoids capital market products. The insurers’ circulars are an overreaching, legally flawed, and commercially motivated overreaction. Agents should seek independent legal advice before surrendering their lawful income opportunities to an insurer’s self-serving edict.
*Dato' Dr Siva Ananthan*
Advisor
Malaysia Wills & Trusts Association
Former Governing Council Member of the ASEAN Law Association
