Indonesia’s Market Collapse is a Warning: SC and Daud Bakar Affair under scrutiny

The recent turmoil in Indonesia’s stock market—triggered by Morgan Stanley’s decision to downgrade and effectively exit the country on grounds of poor corporate governance—should be a wake-up call for Malaysia. 

Markets do not collapse overnight; they corrode gradually when institutions tasked with oversight lose credibility. Indonesia’s experience is not merely an external shock. It is a cautionary mirror.

In Malaysia, Prime Minister Anwar Ibrahim has rightly warned law-enforcement agencies to step aside if they are not serious about combating corruption. His rebuke, aimed primarily at agencies under the Home Ministry, resonated with public frustration. 

Yet conspicuously absent from this call to accountability was the Securities Commission Malaysia (SC)—the statutory body entrusted with safeguarding the integrity of Malaysia’s capital markets.

This omission matters.

Regulatory Failure Is a Governance Risk

The capital market does not fail only because of rogue promoters or reckless investors. It fails when regulators tolerate grey zones, delay enforcement, or selectively interpret rules. Over time, this erodes investor confidence more severely than any single scandal.

The i-RPS (Islamic Redeemable Preference Shares) affair is emblematic of this problem. Public complaints regarding the structure, promotion, and alleged misrepresentations surrounding i-RPS were raised years before enforcement action occurred. 

Yet neither the SC nor the police moved decisively. Only after public pressure mounted did the Malaysian Anti-Corruption Commission (MACC) enter the picture—raising serious questions about jurisdiction, judgment, and process.

Former MACC Chief Commissioner Tan Sri Dzulkifli Ahmad has publicly questioned whether there was even a predicate offence under the MACC Act, noting that securities matters may not fall within MACC’s statutory remit. If that is the case, why was MACC compelled to act where the SC did not?

The uncomfortable implication is that regulatory paralysis elsewhere forced an institutionally awkward intervention.

Damage of Optics and Process

The detention of Tan Sri Dr Daud Bakar—an internationally recognised Islamic finance scholar—sparked intense debate, not only about substance but about process. 

The decision to parade him in an orange MACC attire was widely criticised as unnecessary and disproportionate, particularly when investigations had yet to establish culpability.

This is not an argument for immunity based on reputation. If wrongdoing is proven, the law must take its course without fear or favour. But enforcement must also be competent, proportionate, and institutionally coherent. 

Poor judgment in optics can cause collateral damage—especially to sectors where reputation is a strategic national asset.

Malaysia’s Islamic finance industry is one such asset. Built over decades, it relies heavily on trust, scholarly credibility, and global perception. 

Any enforcement action touching its leading figures must therefore be grounded in clear jurisdiction, solid evidence, and proper sequencing. Otherwise, the blowback risks being systemic rather than corrective.

Already, damaging narratives have emerged—some alleging that the episode was intended to embarrass Malay and Muslim leadership in finance. Whether true or not, such perceptions flourish in a vacuum created by weak regulatory clarity.

Sophisticated Products, Unsophisticated Enforcement

The SC has argued that investments exceeding RM2 million—such as i-RPS—are “sophisticated products” and therefore exempt from licensing requirements, on the assumption that investors are sufficiently learned and capable of self-protection.

This position is deeply problematic.

Sophistication in ticket size does not excuse misrepresentation, false guarantees, or structural opacity. 

The repeated promise of high, allegedly guaranteed returns—some reportedly reaching 18%, alleged high sales commission of 40% for agents, and the use of religious or syariah framing to induce confidence should have triggered early scrutiny. 

Syariah non-compliance is not merely a theological issue; it is a material disclosure risk when used as a marketing tool.

Furthermore, comparisons have been drawn between i-RPS and covered warrants—products that is questionably regulated, but transparently traded on Bursa Malaysia. If instruments with economic similarity are treated radically differently in enforcement terms, regulatory consistency is lost.

The Unanswered Question: Selective Accountability?

A central concern remains unresolved: why was the primary promoter, Mahadi, not apprehended earlier deapite repeated reports for what many have alleged to be a Ponzi-like scheme? 

Why did enforcement attention appear to shift toward the Adviser and signatories rather than originators and operators?

Public speculation—however uncomfortable—arises when enforcement appears asymmetric. Was there a complaint? Who lodged it? Were conflicts of interest examined? 

These questions were towards MACC for failure to communicate clearly and credibly, but the persistance of questions from public occur because SC has failed in their role.

Their persistent silence and invidibility is not neutrality; it is reputational erosion.

A Pattern, Not an Isolated Case

The i-RPS controversy does not exist in isolation. 

It sits alongside earlier episodes that damaged market confidence, including the Corporate Mafia exposé and the Serba Dinamik saga. 

In both cases, serious questions were raised about oversight failures, delayed responses, and alleged insider proximity between regulators and regulated entities.

Whether or not these allegations are ultimately substantiated, the pattern of late intervention, opaque decision-making, and reluctance to confront powerful actors is deeply concerning. 

Investors—especially foreign institutional ones—do not merely assess laws on the books. They assess enforcement culture. Indonesia’s experience shows how quickly sentiment can turn when global investors conclude that governance risk outweighs return.

Reform SC!

Malaysia cannot afford regulatory complacency. The SC must be subjected to the same scrutiny now being demanded of enforcement agencies elsewhere. 

This means:

1. Clear jurisdictional boundaries between SC, police, and MACC, with protocols that prevent buck-passing.
2. Early intervention frameworks for complex or novel products, regardless of investor “sophistication”.
3. Transparent communication when public complaints are dismissed or deferred.
4. Institutional independence, including safeguards against regulatory capture.
5. Proportionate enforcement, focused first on originators of harm rather than peripheral actors.

The alternative is slow institutional decay—until one day, like Indonesia, Malaysia wakes up to a market verdict already delivered.

Governance failures do not announce themselves. They accumulate quietly, until confidence collapses loudly.

Malaysia still has time. But only if regulators stop looking away.