Malaysia operates a dual banking system, namely a conventional banking system operating in tandem with an Islamic banking system. Islamic. The Central Bank of Malaysia is the Malaysian central bank. Established on 26 January as Central Bank of Malaya (Bank Negara Tanah Melayu), its main . A banker’s duty of secrecy in Malaysia is statutory as it is clearly provided Act (“BAFIA”) (currently replaced by section (1) of the FSA.

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Banking regulation in Malaysia: This Banking Regulation guide provides a high level overview of the governance and supervision of banks, including legislation, regulatory bodies and the role of international standards, licensing, the rules on liquidity, foreign investment requirements, liquidation regimes and recent trends in the regulation of banks. Legislation and regulatory authorities Legislation.

What is the legal framework for banking regulation? What are the regulatory authorities for banking regulation in your jurisdiction? What is the role of the central bank in banking regulation? Malaysia operates a dual banking system, namely a conventional banking system operating in tandem with an Islamic banking system.

Islamic banks and international Islamic banks subsist alongside conventional banking institutions and offer a wide range of Islamic financial products in any currency to non-residents and residents. In discharging its supervisory functions, BNM adopts a risk-based supervision approach, under which financial institutions are assessed and monitored based on risk profiles and adequacy of risk management systems.

The Minister of Finance Minister also plays an active role in the regulation of banks and Islamic banks and is the approving authority for applications for banking licences with the power to impose conditions on such licences see Question 3.

The Minister also has powers to revoke licences and to direct investigations in prescribed circumstances. The supervisory framework applies to all types of financial institutions thereby ensuring consistency in the treatment of similar risks throughout the financial sector and enabling consolidated supervision of financial conglomerates.

BNM relies on an institution’s internal oversight and risk management control functions to anticipate and respond to emerging risks and to ensure that identified weaknesses are addressed. To complement this approach, BNM has taken measures to strengthen the boards and senior management of financial institutions to ensure more effective leadership and oversight see Question 9 – Question Other authorities Investment banks which undertake capital market activities in addition to banking activities are also regulated by the Securities Commission of Malaysia SC.

The SC is a statutory body established under the Securities Commission Actand is the primary regulatory authority for capital market activities in Malaysia.

BNM is responsible for the prudential regulation of investment banks to ensure their safety and soundness and the overall stability of the financial system. The SC is responsible for the investment banks’ business and market conduct, to promote market integrity and investor protection in the capital markets.

Separately, companies and businesses carrying on business in Malaysia other than those in the Labuan IBFC, see Question 3 are also generally subject to the regulatory supervision of the Companies Commission of Malaysia. Since the s, banks in Malaysia except international Islamic banks and Labuan banks have had to carry on banking business through a company locally incorporated under the Companies Act CA or corresponding prior statutes. At present, the IFSA allows an international Islamic bank to be either a locally incorporated company or a branch registered with the Companies Commission of Malaysia, whereas Labuan banks must either be incorporated or registered under the Labuan Companies Act Central bank In its role as the central bank, the BNM:.

Formulates monetary policy through its monetary policy committee. Advises the government on macroeconomic policies and managing the public debt.

Is also the sole authority for issuing currency as well as managing the country’s international reserves. Regulates and supervises financial institutions which are subject to the laws enforced by it see above, Lead bank regulators.

Oversees payment systems and money and foreign exchange markets. BNM relies heavily on the work of external auditors and actuaries appointed by financial institutions for supervisory purposes.

A court can refer any question concerning a Shariah matter in proceedings relating to Islamic financial businesses before a court to the SAC for its ruling which is binding on the court sections 56 and 57, CBA. Rulings of the SAC in Islamic financial matters prevail over a conflicting one given by a Shariah body or committee constituted in Malaysia by an Islamic financial institution section 58, CBA.

What licence s are required to conduct banking services and what activities do they cover? Activities which require a banking licence under the Financial Services Act FSA are banking and investment banking business which are defined as follows:.

Islamic banks in Malaysia provide retail and wholesale services based on approved Islamic principles see Question 6. International Islamic banks are essentially the same as Islamic banks except that their Islamic banking business must be carried on in currencies other than the Malaysian Ringgit RM.


BNM has issued guidelines for the establishment of an international Islamic bank. The guidelines also set out the requirements for transactions between an international Islamic bank and residents and where an international Islamic bank engages in RM transactions.

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Other business specified by the Labuan FSA, with the approval of the Minister, subject to compliance with the applicable exchange control restrictions under the FSA. What is the application process for bank licences?

Application An applicant for a commercial banking licence, an investment banking licence or an Islamic bafis licence must be a public company incorporated under the Companies Act CA.

An application for a commercial banking licence or an investment banking licence must be made in writing to the Minister by submitting the application through Bank Negara Malaysia BNM. If BNM is satisfied that the applicant fulfils the set criteria and that it would not, among others, be detrimental to the financial system of Malaysia to grant a licence, BNM can make a recommendation to the Minister of Finance Minister as to whether the licence should be granted or refused and the conditions, if any, to be imposed on the licence.

The procedures for applications for an Islamic banking licence and an international Islamic banking licence are largely similar. BNM cannot recommend the granting of an Islamic banking licence unless it is satisfied that:. The aims and operations of the banking business of the proposed Islamic bank do not involve any element which is contrary to the Shariah. There must be a provision in the articles of association of the bank for the establishment of a Shariah committee.

An applicant for a Labuan banking licence or a Labuan investment banking licence must be a Labuan company, a foreign Labuan company that is, a foreign company registered to carry on business in Labuan or a Malaysian bank section 87, LFSSA. An application for a licence to carry on Labuan banking business or Labuan investment banking business must be made in writing to the Labuan FSA by or on behalf of the applicant.

BNM has not made available any formal template for an application for a banking, Islamic banking, investment banking or Islamic investment banking licence.

We have been given to understand that BNM will not generally be accepting any further applications for licences at this juncture. A template application form for a Labuan banking licence can be found on the Labuan FSA website at www. Supporting information that is required includes, among others, detailed information on the applicant’s shareholders or in the case of a proposed branch the applicant’s corporate group such as:.

Corporate shareholding structure including the applicant:. Certified true copies of its constitutional documents.

A letter of awareness or approval of the relevant authorities in the home country of the applicant which includes:. The proposed organisation chart of the applicant. The Labuan FSA generally requires 30 business days to process an application for a banking licence on receipt of a completed application form.

Character and integrity of the applicant or, if the applicant is a body corporate, its reputation for good governance and integrity. Business of the person to be authorised is not detrimental to the interests of its future depositors, policy owners, participants, users or the public generally.

Soundness and feasibility of the plans of the applicant for the future conduct and development of the business. Nature and sufficiency of the financial resources of the applicant as a source of continuing financial support for the person to be authorised. Business record and experience of the applicant.

That the person to be authorised will be operated responsibly by persons with appropriate competence and experience. Whether the application will be in the best interest of Malaysia, having regard to the:.

Whether the nature, scale and activities of the corporate group of the applicant applying for a licence will impede the effective regulation and supervision of the person to be licensed, including having regard to the nature and degree of regulation and supervision of any financial institution within that corporate group.

Banking regulation in Malaysia: overview

Any application for a banking or investment banking licence under the FSA is subject to the discretion of the Minister to issue such a licence. There is no limit on the number of licences that can be issued, but there is understood to be currently a moratorium on the issuance of new banking licences by BNM.

Minimum capital funds requirements are set out in Question Foreign applicants There are currently no express rules specifically relating to a foreign bfia. The Labuan FSA’s client charter refers to a 30 working day delivery time in respect of applications which meet the necessary requirements.


A bank or financial institution. Has a good credit rating by an acceptable rating agency. Is supervised by a competent regulatory authority. Conforms to generally accepted standards of international banking practices. Malayeia, investment, Islamic and Islamic banks licensees other than licensed international Islamic banks must pay an annual fee of RM, under the Financial Services Fees Regulations and the Islamic Financial Services Fees Regulationsrespectively.

The annual fee payable by a licensed International Islamic bank is RM50, The annual fees for a period of three years payable by each licensee must be paid in advance in a single payment on or before 15 December prior to the beginning of the first year of the three year period.

Can banks headquartered in other jurisdictions operate in your jurisdiction on the basis of their home state banking licence?

Bank Negara Malaysia

Banks headquartered in nafia jurisdictions can set up a representative office for certain permissible marketing activities, but cannot carry out banking or investment banking business in Malaysia unless it has been issued with a licence to carry on banking or investment banking business under the Financial Services Act FSA abfia Islamic banking or Islamic investment banking business under the Islamic Financial Services Act IFSA.

An approved representative office is only allowed under guidelines issued by Bank Negara Malaysia Baia on the Establishment and Operations of Representative Offices in Malaysia, to carry out certain permissible activities including, among others:. Undertaking research, collecting and analysing market information or feasibility studies on investment and business opportunities in Malaysia. Establishing and maintaining contacts and relationships with clients and potential clients, in or outside Malaysia.

Seeking opportunities for the approved representative office’s parent institution or related corporations to provide and participate in the management and syndication of foreign currency international loans or financing, or bond or sukuk issuances to or by the Baria of Malaysia or statutory authorities.

Identifying international project tenders malysia by the Government of Malaysia, statutory authorities or private sector companies for its clients and providing liaison and assistance to such clients in their bids for such projects. Gathering and disseminating trade, economic and financial information or advice on Malaysia to potential investors in Malaysia.

Introducing its clients to Malaysian companies with a view to establishing joint-venture companies in Malaysia and introducing financial institutions to its clients. Facilitating Malaysian companies which require offshore financing or offshore insurance or takaful in securing such financing or insurance or takaful coverage, respectively, through the provision of liaison and research services, subject to relevant approval from the BNM sectionFSA or sectionIFSA.

Forms of banks 6. What forms of bank operate in your jurisdiction, and how are they generally regulated? Does the regulatory regime distinguish between different forms of banks? State-owned banks While there are no state-owned banks in Malaysia, there are government-linked investment companies which control significant stakes in large domestic financial groups.

Universal banks, commercial and retail banks There are many large banks in Malaysia with commercial and investment banking capabilities that are able to offer their clients a full suite of banking and financial services. However, the term “universal bank” is not a recognised legal term in Malaysia. A commercial bank providing Islamic banking services is also subject to the Islamic Financial Services Act IFSA to the extent that its provisions relate to the Islamic banking business that the bank is approved to carry on.

Licensed commercial banks can register themselves with the SC in accordance with the CMSA since some of the activities of commercial banks could involve dealing in securities, advising on corporate finance, the provision of investment advice and fund management all of which are regulated by the Securities Commission of Malaysia SC pursuant to the Capital Markets and Services Act CMSA. Registration means that these banks can carry on the regulated activities without requiring separate licensing under the CMSA.

Investment banks Investment banks were created in Malaysia in through the rationalisation of existing merchant banks, discount houses and stock broking companies within domestic banking groups. Investment banks are allowed to conduct activities based on the types of licences held prior to their rationalisation, and are additionally allowed to undertake fund management and unit trust businesses in line with securities laws and guidelines issued by the SC.

In relation to banking activities, investment banks are allowed to mobilise deposits subject to compliance with the prescribed minimum thresholds, engage in lending activities which are necessary for investment banks to complement their fee-based activities baafia offer comprehensive investment banking packages to bfia clients.

Private banks There are no private banks in Malaysia.