HISTORY OF BANKING

1875 - Chartered Bank

1884 – HongKong & Shanghai Bank
1888 – Algemene Bank Nederland
1920 – Bank of Malaya (Ipoh)
- Batu Pahat Bank – Pacific Bank
1913 – KwongYik Bank (Selangor)
1934 – Kwong Lee Bank (Sarawak)
1935 – Ban Hin Lee Bank (Penang)
1936 – Oriental Bank of Malaya (KL)

B. World War II – disruption of banking system

c. 1945 – reconstruction & rehabilitation of pre-war banks and new

banks
 HISTORY OF BANKING LEGISLATION
 A. Central Bank Ordinance 1958
- Govern Bank Negara Malaysia(BNM)
- Watson-Caine Report 1956 – main principals
(a) Issuance of currency and saving to control the value of
currency.
(b) Act as a bank and financial advisor to govt.
(c) Make sure the financial stability and financial structure
in good condition.
(d) To influence credit situation so to give good effect to
Malaysia.
- Central Bank of Malaysia Act 1958 repealed.
 Central Bank of Malaysia Act 2009
- Consists 100 sections divide into 15 parts.
 s5. (1) The principal objects is to promote monetary
stability and financial stability conducive to the
sustainable growth of the Malaysian economy.
 The primary functions of the Bank are as follows:
- (a) to formulate and conduct monetary policy in
Malaysia; Central Bank of Malaysia 15
- (b) to issue currency in Malaysia;
- (c) to regulate and supervise financial institutions which
are subject to the laws enforced by BNM
- (d) to provide oversight over money and foreign
exchange markets;
- (e) to exercise oversight over payment systems;
- (f) to promote a sound, progressive and inclusive
financial system;
- (g) to hold and manage the foreign reserves of Malaysia;
- (h) to promote an exchange rate regime consistent with
the fundamentals of the economy; and
- (i) to act as financial adviser, banker and financial agent
of the Government.
- Part VII – Islamic financial business
 Establishment and functions of Shariah Advisory Council
 B. Banking Ordinance 1958
- To govern banks in Malaysia
- Banks belong to foreign countries or under control
of foreign countries cannot operate in federation of
Malaya.
- No provision regarding banking secrecy
- Abolished 1973
 Banking Act 1973
- Provision on banking secrecy.
- Foreign owned bank cannot operate in Malaysia
- Abolished 1989
 Banking & Financial Institutions Act 1989
(BAFIA)
- Govern banks and financial institutions.
- Licence institution – finance company, merchant
banking, discount house (public co.),money
broking businesses and businesses in 3rd
Schedule ( building credit businesses, credit
token businesses, develpmt finance buss.,
factoring and leasing business)
- Additional power to BNM eg. Part XI (s82-90) –
investigate, search and seizure
- Lots of new definations and some has been
extended to cover larger scope eg. ‘Banking
business’.
- Part Xiii (s96-102)- banking secrecy and
exceptions that allow bank to make disclosure
are discussed thoroughly.
- Take into consideration the system and also the
people who manage the institution eg. S55 –
bank’s consent required to be director of
licensed institutions.
- BAFIA was abolished, replace with FSA 2013.
 Financial Services Act 2013
(FSA)
 come into force on 30 June 2013
 provide Bank Negara Malaysia with the necessary
regulatory and supervisory oversight powers to fulfill its
broad mandate within a more complex and
interconnected environment, given the regional and
international nature of financial developments.
 The FSA amalgamate several separate laws to govern
the financial sector under a single legislative framework
for the conventional sectors respectively (the Banking
and Financial Institutions Act 1989 (BAFIA), Insurance Act
1996 (IA), Payment Systems Act 2003 and Exchange
Control Act 1953 which are repealed on the same date.
 FSA enables continuing receptions and
application of international stndrds (the
global capital requiremts , supervisory
stndrds, paymt stndrds, anti money
laundering and counter terrorist financing
stndrd, accounting stndrds and Basel III on
liquidity mgmt stndrds )
 Part V – Prudential Requiremts (s46-s52)
 Division I – Standards of prudential (s47-s52)
 Division II – Corporate Gorvenance (s53 –s62)
 Division III – Transparency requirements. (s63-
66)
 Division IV – Auditors
 Part VIII – Business Conduct & Consumer
Protection
 Part XIII , Div 3 – Winding Up
 BNM have power to regulate financial intermediaries
(leasing, factoring, building credit buss eg. AEON
Credit,M’sian Building society Bhd etc. ) which were
previously not supervised and no guideline on how they
were regulated; previously need BNM acknowledgemt to
operate.
 BNM regulate and supervise FHC (Financial Holding Co.)
(eg. CIMB Group Holding Bhd., RHB Capital Bhd., Affin
Holding BHd., Alliance Finance Group Bhd. etc)
C. Bills of Exchange Ordinance 1949
- Passed after Federation of Malaya (1948) for
standardization to the whole federation.
- 1959 – Penang & Malacca – Ord. is known as
Act.
- 1965- Act is applicable to whole Malaysia
- 1978- revised – Bills of Exchange Act (a. 204)
D. Civil Law Act 1948
(a) Before 1948
(i)Penang & Mallaca – 2nd. Charter of Justice1826 –
English Law
(ii) Federated Malay States
- Federated Malay States Civil Enactment 1937
- English law
(iii) Unfederated Malay States
- Customary law
(b) After 1948 – Civil Law Ordinance 1956 – 7/4/56 –
s5(1) & s3(1) – Law of the land is applicable but
if there is lacuna, English law will be applicable
with consideration to situation and custom.
 Other Acts

 Anti Money Laundering And Anti Terrorism

Financing Act 2001 (AMLA)
 Development Financial Institution Act 2002
 Exchange Control Act 1953
 Money Services Business Act 2011
 Electronic Commerce Act 2006
 Islamic Financial Services Act 2013
 Unclaimed Money Act 1965 (amendment
2002)
 Agent banking
 Payment systems in Malaysia
 Banking mediation
 Banking arbitration