Several insurers have barred their agents from “engaging in or promoting” cash trust schemes as regulators step up enforcement of these products, which are often marketed with the promise of high or guaranteed returns.

Internal circulars issued across the industry show what looks like a coordinated move to prohibit agents from offering cash trust schemes amid growing regulatory concern about their legality, structure and potential risks to investors.

These shifts reflect a general caution to firm restrictions as the Securities Commission Malaysia (SC) begins to assert its oversight on a segment that has long been in a regulatory grey area. The notices issued warn that such schemes are often associated with “high or guaranteed returns”, may involve unlicensed activities and carry the risk of misleading representations.

The industry’s response suggests that regulated financial institutions are moving ahead of formal rules to insulate themselves from any potential fallout. Insurers, whose agency networks often double as distribution channels for a range of financial products, appear particularly sensitive to the risk that agents’ involvement could mislead customers into believing such schemes are regulated.

The circulars explicitly warn that even informal referrals or information-sharing could be construed as endorsement. The circulars stress that the insurance companies do not run cash trust schemes and caution that any involvement by agents could create the false impression of company endorsement. 

Cash Trust Products - which allow clients to place funds with a trustee company to be managed on their behalf, occupy an unusual position in Malaysia’s financial services ecosystem. Unlike bank deposits, these products are not covered by deposit insurance protection. At the same time, they have historically fallen outside the direct supervisory remit of both Bank Negara and the SC, leaving the products in what market participants often describe as a regulatory “no man’s land”.

In practice, some cash trust schemes have been marketed as low-risk instruments capable of generating steady returns, sometimes exceeding 10% annually, through investment activities or money-lending arrangements.

The structures can resemble deposit-taking or pooled investment schemes, but without the licensing requirements imposed on banks, fund managers or unit trust operators. Some also impose lock-in periods of three to five years, with penalties for early withdrawal.