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Framework
Learning outcomes
At the end of the chapter, students should
be able to:-
Identify the various financial regulations.
To understand the objectives of BNM as
defined by the Central Bank Acts 1958.
Identify the various legislations
administered and enforced by BNM.
Identify various legislation pertaining to
Labuan as an International Offshore
Financial Centre (IOFC).
Introduction
Banking is the most highly regulated
industries.
The banking industry plays a crucial
role in the economy.
It is necessary to ensure the
fulfillment of regulations imposed by
Bank Negara Malaysia (BNM).
BNM acts in the interest of the
nation and without regard to profit
as a primary consideration.
Legislation Administered and
enforced by BNM
BNM
Labuan
Central Banking and Offshore
Islamic
Bank of Financial Insurance Takaful Act Financial
Banking Act
Malaysia Act Institutions Act 1996 1984 Services
1983
1958 Act 1989 Authority
Act 1996
CENTRAL BANK OF
MALAYSIA ACT, 1958
Central Bank of Malaysia Act
1958
The Act provides for the
administration, objectives of the
Central Bank.
It also enumerates the powers and the
duties of the Central Bank in relation to
the issuance of currency, maintenance
of external reserve, authorized
business of the bank, specific powers
to deal with ailing institutions, its
relationship with the Government and
financial institutions.
Central Bank of Malaysia Act
1958
Establishme
nt
Duties
Provision Administrati
s of CBA on
Powers
Central Bank of Malaysia
Act1958
Establishment Capital and
Administration of the Bank
Bank is called Bank Negara Malaysia or Central
Bank of Malaysia.
Principal objective of BNM:-
i. to issue currency in Malaysia and to keep reserve
safeguarding the value of the currency.
ii. to act as a banker and a financial adviser to the
Government.
iii. to promote monetary stability and a sound
financial structure.
iv. to influence the credit situation to the advantage
of Malaysia.
Central Bank of Malaysia
Act1958
Establishment Capital and
Administration of the Bank
BOD should comprise:-
i. the Governor
ii. not more than three Deputy Governors
iii. not less than five but not more than eight
directors.
Central Bank of Malaysia Act
1958
Currency
Ringgit.
Incorporati
on/
registration LOFS Insuranc
of comp
A e
and limited
partnership
Trust &
fund
managem
ent
LOFSA
Offshore
Banking Act
1990
Labuan
Offshore Offshore
Securities Insurance
Industry Act Act 1990
1998
Labuan
Act
Offshore
Limited
Partnerships
s Offshore
Companies
Act 1990
Act 1997
Labuan
Labuan Trust
Offshore
Companies
Trust Act
Act 1990
1996
FINANCIAL SERVICES
ACT 2013 AND ISLAMIC
FINANCIAL SERVICES
ACT 2013
FSA 2013 and IFSA 2013
The Financial Services Act 2013 (FSA) and Islamic Financial
Services Act 2013 (IFSA) come into force on 30 June 2013.
The laws 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. This includes an increased focus on
preemptive measures to address issues of concern within
financial institutions that may affect the interests of
depositors and policyholders, and the effective and efficient
functioning of financial intermediation.
The FSA and IFSA amalgamate several separate laws to
govern the financial sector under a single legislative
framework for the conventional and Islamic financial sectors
respectively, namely, the Banking and Financial
Institutions Act 1989 (BAFIA), Islamic Banking Act
1983, Insurance Act 1996 (IA), Takaful Act 1984,
Payment Systems Act 2003 and Exchange Control Act
1953 which are repealed on the same date.
FSA 2013 and IFSA 2013
The new laws will place Malaysia's financial
sector, encompassing the banking system, the
insurance/ takaful sector, the financial markets
and payment systems and other financial
intermediaries, on a platform for advancing
forward as a sound, responsible and progressive
financial system.
This is important to enable the financial system to
meet the new demands for financing associated
with Malaysia's economic transformation
programme, the changing demographics of its
population, and the increasing integration of the
Malaysian economy with the region and the world.
Key features of the new
legislation: Greater clarity and transparency in the
implementation and administration of the law. This
includes clearly defined regulatory objectives and
accountability of Bank Negara Malaysia in
pursuing its principal object to safeguard financial
stability, transparent triggers for the exercise of
Bank Negara Malaysia's powers and functionsA clear focus on Shariah
under the law, and transparent assessment compliance and
criteria for authorizing institutions to carry ongovernance in the Islamic
regulated financial business, and for shareholder financial sector. In
suitability; particular, the IFSA
Strengthened provisions provides a comprehensive
for effective and early legal framework that is
enforcement and fully consistent with
supervisory intervention Shariah in all aspects of
regulation and supervision,
from licensing to the
winding-up of an
institution;
Restriction on use of certain words Use of certain words (e.g. bank, insurance, takaful)
(section 139 of FSA/ 151 of IFSA) capable of being construed as indicating the
carrying on of businesses which are regulated
under the FSA/IFSA is not allowed, except with the
prior written approval of Bank Negara Malaysia.
(c) Transitional The FSA provides that no person shall hold 5% or more interest in shares
requirements of a licensed person without the prior approval of Bank Negara
for existing Malaysia. Interest in shares includes direct and effective interest under
shareholders of Schedule 3 of the FSA. Section 279(1) further provides that a person
licensed who holds 5% or more of an effective interest in shares of a licensed
persons under person, but was not required to obtain an approval under section 45 of
FSA the repealed BAFIA and section 67 of the repealed IA shall be deemed to
(section 279(1) be approved under the FSA provided that he submits such documents or
of FSA) information as may be specified by Bank Negara Malaysia no later than
31 December 2013. Further information, including the list of information
to be submitted by affected shareholders are available on Bank Negara
Malaysia website: (Information Requirement under Section
279 (1) of the Financial Services Act 2013).
Section 92 of the FSA further provides that no individual shall hold more
than 10% of interest in shares of a licensed person. This prohibition
does not apply to individuals holding an interest in shares exceeding this
level prior to 30 June 2013 where: (i) the individual had obtained
approval to hold such interest in shares under the BAFIA in the case of a
licensed bank or licensed investment bank; or (ii) where the individual
IFSA 2013
Reclassification of Deposits
Under IBA 1983, all monies accepted from
customers are classified as Islamic deposits, which
comprises both deposit and investment products.
The IFSA provides greater legal clarity on the
application of various types of Shariah financial
contracts and ensure end-to-end compliance in full
cycle of Islamic banking operations e.g. investment
account.
The customers will be able to clearly differentiate
between products which are principal guaranteed
and those who are not.
IFSA 2013
Reclassification of Deposits
Islamic banks can offer products that are principal
guaranteed or non-principal guaranteed feature.
However, Islamic banks are required to classify
such products as either Islamic deposits which use
Shariah contracts with principal guaranteed feature
or investment account which use Shariah contracts
with non-principal guaranteed feature.
prevention;
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