LEGAL & REGULATORY FRAMEWORK

1 AMINURASYED BIN MAHPOP FACULTY OF LAW UNIVERSITI KEBANGSAAN MALAYSIA

Legal & Regulatory Framework

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The Banking System

The Functions and Responsibilities of Monetary and

Non-Monetary Institutions Non-Bank Financial Intermediaries BNM Guidelines Foreign Investment Committee (FIC) Guidelines The Anti-Money Laundering and Anti-Terrorism Financing Act 2001

The Banking System

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Composition of the Banking System

Comprises the Central Bank, commercial banks and other

financial institutions. BNM is at the apex of the monetary and banking system and has been entrusted with the regulation and supervision of the banking system. The offshore banks come under the purview and supervision of the Labuan Financial Services Authority (Labuan FSA).

The Banking System

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Banking Financial Intermediaries

Can be divided into two categories:
1.

2.

The monetary institutions comprising BNM, commercial banks, Islamic banks, International Islamic banks; and The non-monetary institutions comprising the investment banks, development financial institutions and other financial institutions.

The Functions and Responsibilities of Monetary and Non-Monetary Institutions

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Bank Negara Malaysia

To formulate and conduct monetary policy in Malaysia; To issue currency in Malaysia; To regulate and supervise financial institutions which are

subject to the laws enforced by the Bank; To provide oversight over money and foreign exchange markets; To exercise oversight over payment systems; To hold and manage the foreign reserves of Malaysia; To promote an exchange rate regime consistent with the fundamentals of the economy; and To act as financial advisor, banker and financial agent of the government.

The Functions and Responsibilities of Monetary and Non-Monetary Institutions

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Central Bank of Malaysia Act 2009

An act to provide for the continued existence of the Central

Bank of Malaysia and for the administration, objects, functions and powers of the Bank, for consequential or incidental matters.

The Functions and Responsibilities of Monetary and Non-Monetary Institutions

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Banking and Financial Institutions Act 1989

An act to provide new laws for the licensing and regulation

of institutions carrying on banking, finance company, merchant banking, discount house and money-broking businesses, for the regulation of institutions carrying on certain other financial businesses, and for matters incidental thereto or connected therewith.

The Functions and Responsibilities of Monetary and Non-Monetary Institutions

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Banking and Financial Institutions Act 1989

Banque Nationale de Paris v Wuan Swee May & Anor [2000] 3 MLJ

587, High Court Light Style Sdn Bhd v KFH Ijarah House (Malaysia) Sdn Bhd [2009] 4 MLJ 575, High Court Malaysian French Bank Bhd & Ors v Joo Seng Rubber Co Sdn Bhd [1992] 1 MLJ 528, High Court Coramas Sdn Bhd v Rakyat First Merchant Bankers Bhd & Anor [1994] 1 MLJ 369, Supreme Court Phileo Allied Bank (M) Bhd v Koshish Credit & Leasing Sdn Bhd [2002] 1 MLJ 245, High Court Alliance Bank Malaysia Bhd v MVK Development Sdn Bhd [2005] 5 CLJ 77, High Court

The Functions and Responsibilities of Monetary and Non-Monetary Institutions

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Commercial Banks, Islamic Banks and Investment Banks

Providing facilities for savings through current, savings

and fixed/time deposit accounts & other financial instruments; Providing facilities to effect payments on behalf of its customer; Providing loans & credit facilities; Financing the government through the purchase of government securities & treasury bills; and Providing a wide variety of other banking services, such as remittances, facilitating forex transactions, internet banking & the financing.

The Functions and Responsibilities of Monetary and Non-Monetary Institutions

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Offshore Banks
To be responsible for setting national objectives, policies &

priorities for the development & administration of Labuan IBFC; To be responsible for the promotional & development aspects of Labuan IBFC; To supervise the activities & operations of the Labuan financial services industry, & to process applications to conduct business in the Labuan IBFC; and To administer & enforce the Labuan financial services legislation.

Non-Bank Financial Intermediaries

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Development Financial Institutions

To develop & promote key sectors that are considered of

strategic importance to the overall socio-economic development objectives of the country. These strategic sectors include agriculture, small and medium enterprise, infrastructure, maritime, exportoriented sector as well as capital-intensive and hightechnology industries.

Non-Bank Financial Intermediaries

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Credit and Leasing Companies

Provide leasing & hire-purchase facilities for equipment &

machinery. Some of these institutions also provide factoring facilities.

Non-Bank Financial Intermediaries

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Malaysian Exchange of Securities Dealings and Automated Quotations (MESDAQ)

MESDAQ was approved as a stock exchange and is

supervise by the Securities Commission. MESDAQs trading is based on a system of competitive market-making.

Non-Bank Financial Intermediaries

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Securities Commission
Responsible for the regulation & development of the

securities industry, financial futures & option markets, unit trust & property trust schemes & company takeovers & mergers.

BNM Guidelines
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Guidelines on Capital Adequacy

1) Risk-Weighted Capital Adequacy Framework (Basel 1 - Risk-Weighted Assets Computation) 2) Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) 3) Capital Adequacy Framework (Basel II Risk-Weighted Assets) 4) Risk Weighted Capital Adequacy Framework (Basel II) - Disclosure Requirements 5) Capital Requirement 6) Guidelines on Recognition and Measurement of Profit Sharing Investment Account as Risk

Absorbent 7) Guideline on Minimum Capital Funds Unimpaired by Losses for Islamic Banks 8) Capital Adequacy Framework (Capital Components) 9) Capital Adequacy Framework for Islamic Banks (Capital Components 10)Capital Adequacy Framework for Islamic Banks (CAFIB) - Disclosure Requirements (Pillar 3) 11) Risk-Weighted Capital Adequacy Framework (Basel II) - Internal Capital Adequacy Assessment Process (Pillar 2) 12) Capital Adequacy Framework for Islamic Banks (CAFIB) - Internal Capital Adequacy Assessment Process (Pillar 2) 13) Notification on the Implementation of Basel III

BNM Guidelines
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Guidelines on Financial Reporting

Guidelines on Financial Reporting for Licensed Islamic Banks 2) Circular on the Application of FRS and Revised Financial Reporting Requirements for Islamic Banks 3) Guidelines on Financial Reporting for Banking Institutions 4) Guidelines on Financial Reporting for Licensed Islamic Banks (GP8-i)
1)

BNM Guidelines
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Guidelines on Anti-Money Laundering

Anti-Money Laundering and Counter Financing of Terrorism (AML/ CFT) Sectoral Guidelines 1 for Banking and Financial Institutions 2) Standard Guidelines on Anti-Money Laundering and Counter Financing of Terrorism (AML/ CFT) 3) Anti-Money Laundering and Counter Financing of Terrorism Sectoral Guidelines 3 for Licensed Money Changers and/or Non-Bank Remittance Operators
1)

BNM Guidelines
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Guidelines on Prudential Limits & Standards

1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12)

13)
14) 15) 16) 17)

Statutory Reserve Requirement Liquidity Framework Liquidity Framework-i (for Islamic Banking Institutions) Prudential Standards on Securitisation Transactions Guidelines on Accepted Bill-i (AB-i) Guidance Notes on Sell and Buy Back Agreement Transactions Shariah Resolutions in Islamic Finance Guidelines on Single Counterparty Exposure Limit (SCEL) Best Practices for Credit Risk Management Guidelines on Introduction of New Products Guidelines on Investment Banks Guidelines on Investment in Shares, Interest-in- Shares and Collective Investment Schemes Guidelines on Investment in Shares, Interest-in- Shares and Collective Investment Schemes for Islamic Banks. Guidelines on Musharakah and Mudharabah Contracts for Islamic Banking Institutions Guidelines on Fit and Proper for Key Responsible Persons Guidelines on Corporate Governance for Licensed Institutions Guidelines on Corporate Governance for Licensed Islamic Banks (Revised BNM/GP1-i)

BNM Guidelines
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Guidelines on Prudential Limits & Standards

18) 19) 20) 21) 22) 23) 24) 25) 26) 27) 28) 29) 30) 31) 32) 33)

34)

Guidelines on Credit Transactions and Exposures with Connected Parties Guidelines on Credit Transactions and Exposures with Connected Parties for Islamic Banks Minimum Guidelines on the Provision of Internet Banking Services by Licensed Banking Institutions Appointment of External Auditors by Banking Institutions Guideline on Stress Testing Guidelines on the Governance of Shariah Committee for the Islamic Financial Institutions Guidelines on Reference Rates, Lending Rates and Deposit Rates of Banking Institutions Guidelines on International Islamic Bank Appointment of External Auditors by Islamic Banks Guidelines on Permitted Capital Market Activities by Islamic Banks Guidelines on Skim Perbankan Islam Auto Debit Settlement for Ringgit Money Market Transactions with Bank Negara Malaysia Guidelines on Data Management and MIS Framework Prohibition on Specific/ Restricted and Loss-Bearing Fund Placement from Islamic Banks to Parent Banking Institutions Guidelines on Property Development and Property Investment Activities by Islamic Banks Classification and Impairment Provision for Loans/Financing Guidelines on Ibra' (Rebate) for Sale-Based Financing

Foreign Investment Committee (FIC) Guidelines

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Objectives and Rationale for FIC Guidelines

To regulate both foreign and local investments in

Malaysia. Under the FIC Guidelines, companies incorporated in Malaysia may have in aggregate foreign interest of up to 30% with the remaining 70% to be held by Malaysians, including at least 30% Bumiputeras.

Foreign Investment Committee (FIC) Guidelines

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Guidelines on the Acquisition of Interests, Mergers and Takeover

1.

Any proposed acquisition of: a) Substantial fixed assets in Malaysia by foreign interests or assets or interests in companies & businesses in Malaysia, which will result in ownership or control passing to foreign interests; b) 15% or more of the voting power by any one foreign interest or associated group; or c) 30% or more of the voting power of a Malaysian company & business by a foreign interest in aggregate.

Foreign Investment Committee (FIC) Guidelines

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Guidelines on the Acquisition of Interests, Mergers and Takeover

Any transaction where control of Malaysian companies & businesses passes to foreign interests through any form of joint venture, management or technical assistance agreement, or other arrangement; 3. Any merger or takeover of any company or business in Malaysia whether by Malaysian or foreign interests; and 4. Any other proposed acquisition of assets or interests exceeding in value the sum of RM10 million, whether Malaysian or foreign interests.
2.

Foreign Investment Committee (FIC) Guidelines

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Guidelines on the Acquisition of Properties by Foreign Concerns

Foreign interest are not allowed to acquire:
a)

b)
c) d) e)

Low and medium low cost properties; Properties built on Malay reserve land; Properties allocated to Bumiputera in any property development; Stalls and service workshops; Agricultural land developed on the basis of the homestead concept.

The Anti-Money Laundering and AntiTerrorism Financing Act 2001

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Power of Investigation, Search and Seizure

These include the power to:
Enter and search the premises for any property, record,

report or document; Make copies of, take extracts from, take possession of or remove from the premises, any of the records, reports or document that were seized; and Search and detain any person.

The Anti-Money Laundering and AntiTerrorism Financing Act 2001

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Offences by and Legal Obligations and Duties Imposed on Bankers

Money laundering mean the act of a person who: Engages, directly or indirectly, in a transaction that involves proceeds of an unlawful activity; Acquires, receives, possesses, disguises, transfers, converts, exchanges, carries, disposes, uses, removes from or brings into Malaysia proceeds of any unlawful activity; or Conceals, disguises or impedes the establishment of the true nature, origin, location, movement, disposition, title of, rights with respect to, or ownership of, proceed of an unlawful activity; where The person knows or has reason to believe, that the property is proceeds from any unlawful activity; or The person without reasonable excuse fails to take reasonable steps to ascertain whether or not the property is proceeds from any unlawful activity.

The Anti-Money Laundering and AntiTerrorism Financing Act 2001

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Reporting Obligations
Record-keeping by reporting institutions (RI)
1) 2)

3)
4) 5) 6)

The identity & address of the person transacting; The identity & address of the beneficiary or principal; The identity of the accounts affected by the transaction, if any; The type of transaction involved; The identity of the reporting institution where the transaction occurred; and The date, time and amount of the transaction,

The Anti-Money Laundering and AntiTerrorism Financing Act 2001

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Reporting Obligations
Report by reporting institutions
1) 2)

Exceeding the amount specified; and Where the identity of the persons or transaction or circumstances raises suspicion that proceeds of an unlawful activity is involved.

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THE END