KL.EC.100/6/2007/14 KL.EC.

100/1

15 May 2007 TO WHOM IT MAY CONCERN

Tuan, Amendment to the Exchange Control Act 1953 Reference our circular letter dated 1 April 2007 on the above. Please be informed that the said circular letter is amended for further clarity as underlined in the following: Effective 1 January 2007, the Exchange Control Act 1953 (the Act) was amended to (a) strengthen the enforcement power relating to unauthorised dealings in foreign currency; and enable Bank Negara Malaysia (the Bank) to enhance the surveillance of contingent liability from the issuance or obtaining of guarantees by residents.

(b)

2.

The amendments are as follows: (a) Section 4(1) and 4(3) were amended to regulate preparatory acts relating to dealings in gold or foreign currency by any person (resident and non-resident) in Malaysia other than an authorised dealer; (Dealings in gold or foreign currency refer to the buying, selling, borrowing or lending of gold or foreign currency.) (b) Section 4A was introduced to regulate advertisements relating to dealings in gold or foreign currency by any person (resident and non-resident) in Malaysia other than an authorised dealer; and

(c)

Section 10A was introduced to regulate (i) the issuance of guarantees in respect of any debt, obligation or liability (hereinafter referred to as financial guarantees) by residents (bank and non-bank) on behalf or in favour of nonresidents; or the obtaining of financial guarantees by residents (bank and non-bank) from non-residents.

(ii)

Preparatory Acts and Advertisements on Dealings in Gold or Foreign Currency 3. Pursuant to the Exchange Control (Gold Exemption) Order 1986, residents and non-residents in Malaysia are free to buy, borrow, sell, lend or export gold. 4. The current foreign exchange administration policy also allows (a) A resident individual or company on corporate group basis to borrow in foreign currency up to the aggregate of RM10 million or RM100 million equivalent, respectively; A resident (individual or company on corporate group basis) without domestic ringgit credit facilities to lend any amount in foreign currency to a non-resident; and A resident individual or company on corporate group basis, with domestic ringgit credit facilities to lend in foreign currency (i) (ii) from own foreign currency funds of any amount; and from conversion of ringgit funds up to RM1 million or RM50 million per calendar year, respectively.

(b)

(c)

5. To facilitate the above transactions, the Controller of Foreign Exchange (the Controller) gives general permission to a resident or a non-resident, in Malaysia to (a) do any act which involves, is in association with, or is preparatory to borrowing foreign currency from, or lending foreign currency to, any person other than a Specified Person; or issue, publish or facilitate the issuance or publication by any person, of an advertisement containing (i) an invitation or an offer to buy, borrow, sell or lend any gold;
Page 2 of 6

(b)

(ii)

an invitation or an offer to borrow or lend any foreign currency; information which is intended or might reasonably be presumed to be intended to lead, directly or indirectly, to the buying, borrowing, selling or lending of any gold; or information which is intended or might reasonably be presumed to be intended to lead, directly or indirectly, to the borrowing or lending of any foreign currency.

(iii)

(iv)

6. The term advertisement is as defined in subsection 4A (2) of the Exchange Control Act 1953 and as reflected in the attached Appendix I. Financial Guarantees 7. To facilitate the licensed onshore bank to undertake banking business, the Controller gives permission to a licensed onshore bank 1 to (a) issue a financial guarantee of any amount on behalf or in favour of a non-resident; or obtain a financial guarantee of any amount from a non-resident.

(b)

8. The above financial guarantees issued or obtained by the licensed onshore bank are not required to be registered with the Controller. The licensed onshore bank, however, shall ensure that the credit facility being guaranteed is extended or obtained in compliance with the prevailing foreign exchange administration rules. 9. For a financial guarantee issued by a licensed onshore bank or a non-bank resident in favour or on behalf of a non-resident that is counter-guaranteed by another non-bank resident, the financial guarantee is deemed to be issued by the non-bank resident counter-guarantor. Such financial guarantees shall be subject to the provisions stated in paragraph 12 below. 10. For a financial guarantee that is counter-guaranteed by a non-resident to secure a credit facility obtained by a non-bank resident, the financial guarantee is deemed to be obtained by the non-bank resident borrower. 11. To facilitate business efficiency, subject to paragraph 12, the Controller gives permission to a non-bank resident to
1

A licensed onshore bank refers to a commercial bank or an investment bank licensed under the Banking and Financial Institutions Act 1989 or an Islamic bank licensed under Islamic Banking Act 1983.

Page 3 of 6

(a)

issue a financial guarantee of any amount on behalf or in favour of a non-resident; or obtain a financial guarantee of any amount from a non-resident.

(b)

12. This is provided that the financial guarantee is registered with the Controller at least seven (7) working days prior to the issuance or obtaining of the financial guarantee, if (a) the aggregate amount of financial guarantees issued or obtained by the non-bank resident exceeds RM50 million, respectively; and the financial guarantee is to secure a credit facility that has not been registered with or approved by the Controller and that credit facility is extended by (i) a resident (bank or non-bank) to another resident (bank or non-bank); a resident (bank or non-bank) to a non-resident; a non-resident to a resident (bank or non-bank); or a non-resident to another non-resident.

(b)

(ii) (iii) (iv)

13. The Controller may reject any application for registration of a financial guarantee within seven (7) working days from receipt of full information based on the following: (a) The financial guarantee is obtained or issued for a credit facility which is not used to finance activities that will benefit Malaysia, including but not limited to the following: (i) (ii) (iii) Gaining market access which will use Malaysian input; Assisting the export of Malaysias product or services; Promoting the transfer of technology and know-how to Malaysia; or Facilitating the supply of inputs required by resident companies.

(iv)

(b)

Non-alignment to the principle of non-internationalisation of ringgit policy; or

Page 4 of 6

(c)

Non-compliance of the Anti-Money Laundering and Anti-Terrorism Financing Act 2001.

14. The registration of a financial guarantee issued by a non-bank resident without domestic ringgit credit facilities on behalf of a non-resident in favour of another non-resident will not be subject to the conditions stipulated in paragraph 13(a). 15. The registration shall be made by completing Form A Financial Guarantee and providing the list of required information to the Controller. The form and list of required information can be obtained at http://www.bnm.gov.my/fxadmin. 16. The financial guarantee issued by a resident on behalf or in favour of a nonresident or obtained by a resident from a non-resident prior to 15 April 2007 would continue to be in force until expiry. 17. Any renewal, extension, cancellation or change in terms and conditions of a financial guarantee shall be notified to the Controller at least seven (7) working days of the cancellation or extension by completing Form B Financial Guarantee Renewal / Extension / Cancellation / Change Amount to the Controller. The form can be obtained at http://www.bnm.gov.my/fxadmin. Payment under a financial guarantee 18. The Controller gives permission for a licensed onshore bank to make payment to a non-resident under a financial guarantee issued by the licensed onshore bank on behalf or in favour of a non-resident. Subject to paragraph 20, the Controller gives permission for a non-bank 19. resident to (a) make payment to another resident (bank or non-bank) or to a nonresident under a financial guarantee issued by the non-bank resident on behalf or in favour of a non-resident; obtain a loan that is consequential to a financial guarantee obtained by the non-bank resident from a licensed onshore bank or nonresident; or repay a loan that is consequential to a financial guarantee obtained by the non-bank resident from a licensed onshore bank or nonresident.

(b)

(c)

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20.

This is provided that (a) relevant documentary evidence is furnished to the remitting or receiving licensed onshore bank to ensure compliance with the prevailing foreign exchange administration policies; where the aggregate amount of financial guarantees issued or obtained by the resident exceeds RM50 million, respectively, the financial guarantee has been registered with the Controller; and where the financial guarantee has been registered with the Controller, notification in writing to the Controller shall be made within seven (7) working days of the financial guarantee being called upon.

(b)

(c)

21. The notification shall be made by completing Form C Financial Guarantee Called Upon that can be obtained at http://www.bnm.gov.my/fxadmin. 22. The resident is also required to comply with the detailed requirements as stated in the attached Appendix II. 23. The circular letter on Amendment to the Exchange Control Act 1953 dated 1 April 2007 is superseded. 24. Pursuant to section 39(1) of the Act, all circular letters and clarification items issued under Clarification to the New ECM Notices relating to guarantees involving a resident or a non-resident issued on or before 1 April 2007 are hereby revoked.

Page 6 of 6

Appendix I

Advertisements Section 4A (2) defines advertisement as the disseminating or conveying of information, invitation or solicitation by any means or in any form, including by means of (a) (b) (c) (d) (e) (f) any newspaper, magazine, journal or other periodical; posters, notices or signboards; circulars, handbills, brochures, pamphlets, books or other documents; letters addressed to individuals or bodies; photographs or cinematograph films; or sound broadcasting, television, computers or other electronic means.

Page 1 or 1 (Appendix I)

Appendix II Registration Requirement on Financial Guarantees

A.
No 1.

Issuance of Financial Guarantees on behalf or in favour of Non-residents

Lender Licensed onshore bank Licensed onshore bank Borrower Licensed onshore bank Non-resident Registration Requirement Registration is not required.

Guarantor Licensed onshore bank Licensed onshore bank

2.

Registration is required1 if the financial guarantee were counter-guaranteed by a non-bank resident. (Non-bank resident counter-guarantor is deemed to issue the financial guarantee on behalf of the non-resident borrower.)

The licensed onshore bank lender shall ensure that the loan is in compliance with the prevailing foreign exchange administration rules. Registration is required2 if the financial guarantee were counter-guaranteed by a non-resident to secure a Foreign currency credit facility that is not in compliance with the prevailing foreign exchange administration rules; or Ringgit credit facility. (Non-bank resident borrower is deemed to obtain the financial guarantee from the non-resident counter-guarantor.)

3.

Licensed onshore bank

Licensed onshore bank

Non-bank resident

4.

Licensed onshore bank Licensed onshore bank

Non-bank resident Non-bank resident

Licensed onshore bank Non-bank resident

Registration is not required.

5.

Registration is required2 if the financial guarantee were counter-guaranteed by a non-resident. (Non-bank resident borrower is deemed to obtain the financial guarantee from the non-resident counter-guarantor.)

Page 1 of 11 (Appendix II)

No 6.

Guarantor Licensed onshore bank

Lender Non-bank resident

Borrower Non-resident

Registration Requirement Registration is not required. Guarantor shall ensure that the loan being guaranteed is in compliance with the prevailing foreign exchange administration rules. Registration is not required. Guarantor shall ensure that the loan being guaranteed is in compliance with the prevailing foreign exchange administration rules. Registration is not required. Guarantor shall ensure that the loan being guaranteed is in compliance with the prevailing foreign exchange administration rules. Registration is required1 if the financial guarantee were counter-guaranteed by a non-bank resident. (Non-bank resident counter-guarantor is deemed to issue the financial guarantee on behalf of the non-resident borrower.)

7.

Licensed onshore bank

Non-resident

Licensed onshore bank

8.

Licensed onshore bank

Non-resident

Non-bank resident

9.

Licensed onshore bank

Non-resident

Non-resident

10.

Non-bank resident Non-bank resident

Licensed onshore bank Licensed onshore bank

Licensed onshore bank Non-bank resident

Registration is not required.

11.

Registration is required2 if the financial guarantee were counter-guaranteed by a non-resident to secure a Foreign currency credit facility that is not in compliance with the prevailing foreign exchange administration rules; or Ringgit credit facility. (Non-bank resident borrower is deemed to obtain the financial guarantee from the non-resident counter-guarantor.)

12.

Non-bank resident Non-bank resident

Licensed onshore bank Non-bank resident

Non-resident

Registration is required1.

13.

Licensed onshore bank

Registration is not required.

Page 2 of 11 (Appendix II)

No 14.

Guarantor Non-bank resident

Lender Non-bank resident

Borrower Non-bank resident

Registration Requirement Registration is required2 if the financial guarantee were counter-guaranteed by a non-resident. (Non-bank resident borrower is deemed to obtain the financial guarantee from the non-resident counter-guarantor.)

15.

Non-bank resident

Non-bank resident

Non-resident

Registration is required1 if the loan being guaranteed were not in compliance with the prevailing foreign exchange administration rules. Registration is required1 if the loan being guaranteed were not in compliance with the prevailing foreign exchange administration rules. Registration is required1 if the loan being guaranteed were not in compliance with the prevailing foreign exchange administration rules. Registration is required1.

16.

Non-bank resident

Non-resident

Licensed onshore bank

17.

Non-bank resident

Non-resident

Non-bank resident

18.

Non-bank resident

Non-resident

Non-resident

Page 3 of 11 (Appendix II)

B. No 1. Guarantor Non-resident

Obtaining of Financial Guarantees by Residents from Non-residents Lender Licensed onshore bank Borrower Licensed onshore bank Registration Requirement Registration is required1 if the financial guarantee were counter-guaranteed by a non-bank resident. (Non-bank resident counter-guarantor is deemed to issue a financial guarantee in favour of the non-resident guarantor.)

2.

Non-resident

Licensed onshore bank

Non-bank resident

Registration is required2 if the financial guarantee were to secure a Foreign currency credit facility that is not approved by the Controller; or Ringgit credit facility.

3.

Non-resident

Licensed onshore bank

Non-resident

Registration is required1 if the financial guarantee is counter-guaranteed by a nonbank resident. (Non-bank resident counter-guarantor is deemed to issue a financial guarantee on behalf of the non-resident borrower and in favour of the non-resident guarantor.)

The licensed onshore bank lender shall ensure that the loan is in compliance with the prevailing foreign exchange administration rules. Registration is required1 if the financial guarantee were counter-guaranteed by a non-bank resident. (Non-bank resident counter-guarantor is deemed to issue a financial guarantee in favour of the non-resident guarantor.)

4.

Non-resident

Non-bank resident

Licensed onshore bank

5.

Non-resident

Non-bank resident Non-bank resident

Non-bank resident Non-resident

Registration is required2.

6.

Non-resident

Registration is required1 if the financial guarantee were counter-guaranteed by a non-bank resident. (Non-bank resident counter-guarantor is deemed to issue a financial guarantee on behalf of the non-resident borrower and in favour of the non-resident guarantor.)

Page 4 of 11 (Appendix II)

No

Guarantor

Lender

Borrower

Registration Requirement The non-bank resident lender shall ensure that the loan is in compliance with the prevailing foreign exchange administration rules. Registration is not required. The licensed onshore bank borrower shall ensure that the loan is in compliance with the prevailing foreign exchange administration rules. Registration is required2, if the loan being guaranteed were not approved by the Controller. Registration is required1 if the financial guarantee were counter-guaranteed by a non-bank resident. (Non-bank resident counter-guarantor is deemed to issue a financial guarantee on behalf of the non-resident borrower and in favour of the non-resident guarantor.)

7.

Non-resident

Non-resident

Licensed onshore bank

8.

Non-resident

Non-resident

Non-bank resident

9.

Non-resident

Non-resident

Non-resident

Note: The Controller of Foreign Exchange may reject any application for registration of a financial guarantee within seven (7) working days from the date of receipt of full information. Please refer to the circular letter dated 15 May 2007 ref no. KL.EC.100/6/2007/14 on Amendments to the Exchange Control Act 1953 for further information.

Registration is required for each guarantee if the aggregate amount of financial guarantees issued by the non-bank resident involving non-residents exceeds RM50 million or its equivalent in foreign currency.

Registration is required for each guarantee if the aggregate amount of financial guarantees obtained by the non-bank resident involving non-residents exceeds RM50 million or its equivalent in foreign currency.

Page 5 of 11 (Appendix II)

C.

Currency of Denomination and Payments on Transactions relating to Financial Guarantees

Currency of Denomination of Financial Guarantee Description Financial guarantee issued or obtained by a resident (bank or nonbank) to secure the obligation of a foreign currency credit facility. Financial guarantee issued or obtained by a resident (bank or nonbank) to secure the obligation of a ringgit credit facility. Ringgit Allowed up to the equivalent of the foreign currency credit facility. Foreign Currency Allowed.

Allowed.

Allowed up to the equivalent of the ringgit credit facility.

Payment under Financial Guarantee Description A financial guarantee issued by a resident (bank or non-bank) to secure the obligation of a foreign currency credit facility.

Ringgit

Foreign Currency

Payment by a resident (bank or non-bank) to a non-resident. Payment by a non-bank resident to a licensed onshore bank.

Not allowed.

Allowed.

Allowed up to the equivalent of the foreign currency credit facility. Allowed up to the equivalent of the foreign currency credit facility. Must be in ringgit up to the equivalent of the foreign currency credit facility.

Allowed.

Payment by a licensed onshore bank to a non-bank resident.

Allowed.

Payment by a non-bank resident to another non-bank resident.

Not allowed.

Page 6 of 11 (Appendix II)

Payment under Financial Guarantee Description A financial guarantee issued by a resident (bank or non-bank) to secure the obligation of a ringgit credit facility.

Ringgit

Foreign Currency

Payment by a resident (bank or non-bank) to a non-resident.

Allowed. The funds shall be credited into the External Account of the non-resident.

Allowed up to the equivalent of the ringgit credit facility.

Payment by a non-bank resident to a licensed onshore bank.

Allowed.

Allowed up to the equivalent of the ringgit credit facility.

Payment by a licensed onshore bank to a non-bank resident.

Allowed.

Allowed up to the equivalent of the ringgit credit facility. Not allowed.

Payment by a non-bank resident to another non-bank resident.

Must be in ringgit.

Page 7 of 11 (Appendix II)

Payment under Financial Guarantee Description A financial guarantee obtained by a resident (bank or non-bank) from a non-resident to secure the obligation of a foreign currency credit facility.

Ringgit

Foreign Currency

Payment by the non-resident to a resident (bank or non-bank).

Allowed up to the equivalent of the foreign currency credit facility, provided the financial guarantee is made by way of pledging of ringgit assets or fixed deposits of the nonresident guarantor. The ringgit funds shall be obtained from: the sale of ringgit assets pledged for settlement of the foreign currency credit facility; or the lifting of the nonresident guarantors fixed deposit.

Allowed.

Payment by the non-resident to another non-resident.

Not allowed.

Must be in foreign currency.

Page 8 of 11 (Appendix II)

Payment under Financial Guarantee Description A financial guarantee obtained by a resident (bank or non-bank) from a non-resident to secure the obligation of a ringgit credit facility.

Ringgit

Foreign Currency

Payment by the non-resident to a resident (bank or non-bank).

Allowed. The ringgit funds shall be obtained from:

Allowed up to the equivalent of the ringgit credit facility.

the sale of ringgit assets pledged for settlement of the ringgit credit facility; or the non-resident guarantors external account. Must be in foreign currency up to the equivalent of the ringgit credit facility.

Payment by the non-resident to another non-resident.

Not allowed.

Page 9 of 11 (Appendix II)

D.

Currency of Denomination of Consequential Debt arising from Financial Guarantees

Denomination of Consequential Debt arising from Financial Guarantee

Description

Ringgit

Foreign Currency Allowed.

Notification requirement* Notification is required.

Debt consequential to a financial guarantee called upon which is due to a resident (bank or non-bank) from a non-resident. Debt consequential to a financial guarantee called upon which is due from a licensed onshore bank to a non-resident. Debt consequential to a financial guarantee called upon which is due from a non-bank resident to a nonresident. Debt consequential to a financial guarantee called upon which is due to a non-bank resident from another non-bank resident. Debt consequential to a financial guarantee called upon which is due to a licensed onshore bank from a nonbank resident. Debt consequential to a financial guarantee called upon which is due to a non-resident from another nonresident

Not allowed.

Not allowed.

Allowed.

Notification is not required.

Not allowed.

Allowed.

Notification is required.

Must be in ringgit.

Not allowed.

Notification is not required.

Allowed.

Allowed up to the equivalent of the ringgit debt.

Notification is not required.

Not allowed.

Must be in foreign currency.

Notification is not required.

Note: * The notification of a financial guarantee being called upon shall be made to the Controller of Foreign Exchange within seven (7) working days of the financial guarantee being called upon. The notification shall be made by completing Form C Financial Guarantee Called Upon that can be obtained at http://www.bnm.gov.my/fxadmin.

Page 10 of 11 (Appendix II)

E.

Currency of Repayment of Consequential Debt arising from Financial Guarantees

Payment under Consequential Debt arising from Financial Guarantee Description Ringgit Not allowed. Foreign Currency Allowed.

Payment due to a resident (bank or non-bank) from a non-resident arising from a debt consequential to a guarantee called upon. Payment due from a licensed onshore bank to a non-resident arising from a debt consequential to a guarantee called upon. Payment due from a non-bank resident to a nonresident arising from a debt consequential to a guaranteed called upon. Payment due to a non-bank resident from another non-bank resident arising from a debt consequential to a guarantee called upon. Payment due between a licensed onshore bank and a non-bank resident arising from a debt consequential to a guarantee called upon. Payment due to a non-resident from another nonresident arising from a debt consequential to a guarantee called upon.

Not allowed.

Allowed.

Not allowed.

Allowed.

Must be in ringgit.

Not allowed.

Allowed.

Allowed up to the equivalent of the ringgit debt. Must be in foreign currency.

Not allowed.

Page 11 of 11 (Appendix II)