Bank Negara Malaysia

• Established on January 26, 1959.

• Established for the management of money
and credit i.e. to control the monetary system
of the country.
 Sources of Funds
• The Bank initially started its operations in 1959
with a paid-up capital of RM20 million and has
since increased to its present level of RM100
million in 1977.
• Sources of funds includes the paid-up capital,
deposits placed with BNM, allocation of special
drawing funds and loans.
• The uses of funds includes reserves, deposits
placed in financial institutions, purchase of
Malaysian Government Papers, and loans and
advances.
•The CBA provides BNM with powers to supervise and regulate Islamic banks, similar
to the case of other licensed banks.
•Its main objectives as defined in the Central Bank of Malaysia Act 1958 are to:

Issue currency and keep Act as a banker and Promote monetary

the reserves financial adviser to stability and a sound
safeguarding the value the Government. financial structure.
of the currency.

Promote the reliable, efficient and smooth operation of

Influence the credit
national payment and settlement systems and to ensure
situation to the
that the national payment and settlement systems
advantage of Malaysia.
policy is directed to the advantage of Malaysia.
 Central Bank 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.
Financial Services Act 2013
Government Funding Act 1983 •An Act to provide for the regulation and
supervision of financial institutions,
•An Act to provide for the raising of
payment systems and other relevant
funds by the Government of Malaysia in
entities and the oversight of the money
accordance with the Syariah principles
market and foreign exchange market to
and to provide for matters incidental
promote financial stability and for
thereto or connected therewith.
related, consequential or incidental
matters.

Islamic Financial Services Act

Money Services Business Act

2011
Acts under BNM’s 2013
•An Act to provide for the regulation and
supervision of Islamic financial

Supervision
institutions, payment systems and other
•An Act to provide for the licensing,
relevant entities and the oversight of the
regulation and supervision of money
Islamic money market and Islamic foreign
services business and to provide for
exchange market to promote financial
related matters.
stability and compliance with Shariah and
for related, consequential or incidental
matters.

Anti-Money Laundering and Anti-Terrorism Development Financial Institutions Act 2002

Financing Act 2001
•This renamed and revised Act which came into force on
15 January 2002, is to provide for the offence of money
laundering, the measures to be taken for the prevention
of money laundering and terrorism financing offences
and to provide for the forfeiture of terrorist property and
property involved in, or derived from, money laundering
and terrorism financing offences, and for matters
incidental thereto and connected therewith.
•The DFIA which came into force on 15 February 2002 focuses on
promoting the development of effective and efficient development
financial institutions (DFIs) to ensure that the roles, objectives and
activities of the DFIs are consistent with the Government policies
and that the mandated roles are effectively and efficiently
implemented. DFIA also emphasises on efficient management and
effective corporate governance, provides a comprehensive
supervision mechanism and mechanism to strengthen the financial
position of DFIs through the specification of prudential
requirements.
 Functions of BNM
Banker for currency
issue

Keeper of
international
Banker to the
reserves and
banks
safeguarding the
value of the ringgit

Agency responsible
Banker and
for monetary policy
financial adviser to
and management
the government
of financial system
 Banker for Currency Issue
• BNM started to issue its own currency on June
12, 1967.
• The Malaysian currency was renamed
“ringgit” and “sen” from “dollar” and “cents”
under the Malaysian Currency (Ringgit) Act
1975.
 Keeper of International Reserves and
Safeguarding the Value of the Ringgit
• International reserves are gold, foreign
exchange, reserve position with International
Monetary Fund (IMF) and Special Drawing
Rights (SDRs).
• Gold and foreign exchange has been the major
component of external reserves held by BNM.
 Keeper of International Reserves and
Safeguarding the Value of the Ringgit
• The CBO 1958 provides for the maintenance
of a minimum external reserves backing of
80.59% against the currency issue.
• Since September 27, 1975, the external value
of the Ringgit has been determined in terms
of a composite basket comprising the
currencies of the major trading partners of
Malaysia and the principal currencies used in
external settlements.
Banker and Financial Adviser to the
Government

Management
of
Sources of Government
Funds to the Accounts
Government

Management
of the
National
Debt

Function of BNM as the banker and

financial adviser to the government
Management of Government Accounts
• BNM performs the functions of providing
check facilities, accept funds and makes
payments on behalf of the government and
undertakes the foreign exchange business of
the government.
 Sources of Funds to Government
• This is done by granting advances to the
government and as the lender of the last resort.
• Advances are given to cover any deficit in the
budget revenue and must be repaid as soon as
possible.
• CBO stipulates that the advances should not
exceed 12.5% of the budget revenue.
• BNM has the discretion to determine the interest
rate charged for the advances.
Management of the National Debt
• BNM manages the public debt and is
responsible for the floatation of government
loans in Malaysia or abroad.
• BNM advises the government on its loan
programs i.e. terms and timing of loans and
the issue of new types of securities.
 Agency Responsible for Monetary Policy and
Management of the Financial System

Quantitative Measures Qualitative Measures

• Statutory Reserve • Interest Rate Ceiling
Requirements • Selected Credit Control
• Liquidity Requirements • Moral Suasion
• Centralization of
Government and Employees To influence the credit
Provident Fund (EPF) situation in order to
achieve the country’s
Deposits with the Central overall economic
Bank objectives.
• Money Market Operations
Statutory Reserve Requirements (SRR)
• SRR is defined in terms of a bank’s eligible
liabilities (EL) which comprise of deposits
(including negotiable certificates of deposit
(NCDs), repurchase agreements (REPOs) and
net interbank borrowings).
• The banking institutions are required to
maintain a certain percentage of their
reserves with BNM.
Statutory Reserve Requirements (SRR)
• SRR is an instrument available to BNM
because it affects the level of deposits and
loans.
Higher SRR would
reduce the
amount of loans
and deposits and
vice-versa.
Statutory Reserve Requirements (SRR)
• In 1989, SRR was revised to a uniform ratio of
4.5% of the E.L. base.
• The variation in SRR is necessary to either
reduce or inject large amounts of liquidity.
 Liquidity Requirements
• Banking institutions (including Bank Islam) are
required to observe a minimum liquidity ratio in
order to ensure liquidity to meet customers’
withdrawals.
• Statutory liquid assets are kept in the banks.
• Liquid assets include cash, clearing balances with
the Central Bank, money at call, Treasury Bills,
government securities, government investment
certificates, Cagamas bonds, bill discounted or
purchased, Bank Negara Bills, BNM Certificates
and State government securities.
Statutory Liquid Assets Usage

To ensure that the banks

always maintain liquid
assets to safeguard the
interests of the
depositors.

To be used as a
means to ensure
continuous and ready To be used for credit
financing of the policy purposes or
government’s for credit creation.
development
projects.
 Centralization of Government and
Employees Provident Fund (EPF)
Deposits with the Central Bank
• The EPF account in BNM was introduced to
enable BNM to reduce liquidity at source and
provide greater flexibility in its monetary
management.
• Interest is paid on these accounts based on
market rates.
 Money Market Operations
• Is conducted to influence the liquidity
situation in the financial system.
• During tight monetary policy, BNM will reduce
liquidity by issuing or selling government
papers to market participants.
• For easy monetary policy, BNM will
repurchase the government papers from the
market participants in order to increase
liquidity.
 Money Market Operations
• MMO can be conducted either through
borrowing or lending by BNM in the interbank
market and also through open market operations
(i.e. through selling and buying government
papers in open organized markets).
• To ensure smooth functioning of MMO, BNM
intervenes when the money rates are volatile, it
will inject funds into the market through
purchasing of papers or outright supply of funds
when the market is tight and when the market is
liquid, the reverse will happen.
 How the Economy and Inflation is
Affected by BNM’s Monetary Policy
Bank Negara
Malaysia

Economic Growth/ Monetary

Inflation Operations

Consumer & Bank Reserves

Money Supply
Business Spending (Liquidity)

Interest Rates

Exchange Rate
What BNM Does in Stimulating the
Economy

Economic Bank Short-

Growth Reserves Term
below Interest Economic
Potential Rates Activity

Inflation
Very Low Loans
 Discount Operations
• Used by BNM to influence the interest rate and
liquidity situation through rediscounting of
eligible short-term assets or through secured
advances.
• Commercial banks, merchant banks and discount
houses may borrow from BNM by discounting
Treasury Bills and other bills or seek an advance
secured by paper eligible for rediscounting (i.e.
using government securities and any other
collateral acceptable to the bank).
 Discount Operations
• Increases in discounting by BNM adds to the
reserves of banks and a decrease reduces the
flow of bank reserves thus will affect the
growth of money and credit.
 Interest Rate Ceiling
• On Nov. 1, 1983 the base lending rate (BLR)
was introduced and BNM administered the
BLR.
• But starting from February 1, 1991 the
banking institutions were free to quote their
own BLR in order to reflect each institution’s
cost of funds.
 Selected Credit Control
• These measures are used in regulating the
volume and direction of credit.
• Besides the general guidelines, BNM also use
a number of selective measures of credit
controls that are specific and targeted at
certain sectors.
 Moral Suasion
• A technique used by BNM to induce a
voluntary response from the financial system
to its policy initiatives and the effectiveness of
moral suasion depends on these factors:
– Prestige and standing of the monetary authority;
– The degree the financial institutions are convinced
the actions to be taken.
 Banker to banks

Inspection
Licensing of and Lender of
Banking Currency
banks and investigation the last
relationship distribution
non-banks of banks and resort
non-bank
 Licensing of Banks and Non-Banks
• A bank should fulfill minimum criteria such as
bank’s shareholding structure should be in
accordance with the economic policy,
maintain minimum net assets so that it is
sufficient to safeguard depositors’ interest, all
banks operating in Malaysia (whether
Malaysian or foreign controlled) must be
incorporated in Malaysia and banks must
maintain certain level of minimum capital
funds.
 Banking Relationship
• Maintained by having two types of deposits
accounts with BNM:
– SRR
– Current Account
• Constitutes as a normal current account and clearing
account.
 Currency Distribution
• Done through providing cash required by the
commercial banks and also for the acceptance
of case from commercial banks.
• Banks need to order currency from BNM in
order to replenish their cash supply.
• BNM in return will charge this to the current
account of the concerned bank.
• If banks have extra cash, cash can be handed
in to BNM.
 Inspection and Investigation of Banks
and Non-Banks
• BNM has the power to inspect licensed banks
and do investigations in order to ensure the
banks are running smoothly.
• Inspections are done in the areas of
investment, lending policies, assets, quality of
management and compliance with SRR and
guidelines and directives given by BNM.
 Lender of the Last Resort
• This is done through rediscounting of eligible
bills, government securities, trade bills and
commercial papers with BNM by licensed
institutions.
• Besides extending credit, BNM also can place
short-term deposits with these institutions on
a roll-over basis.
 FINANCIAL SERVICES ACT
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 especially important to
enable the financial system to meet the new demands for financing associated with Malaysia's economic
transformation program both during and beyond the next decade, the changing demographics of our
population, and the increasing integration of the Malaysian economy with the region and the world.
 Introduction
• The Financial Services Act 2013 (FSA) and Islamic Financial Services Act 2013 (IFSA)
come into force on 30 June 2013.
• The new act to ensure that these laws continue to be relevant and effective to
maintain financial stability, support inclusive growth in the financial system and
the economy, as well as to provide adequate protection for consumers.
• The laws provides Bank Negara Malaysia with the necessary regulatory and
supervisory oversight powers to fulfill its mandate.
• 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.
 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
functions under the law, and transparent assessment criteria for authorizing
institutions to carry on regulated financial business, and for shareholder suitability;
• Provisions for differentiated regulatory requirements that reflect the nature of
financial intermediation activities and their risks to the overall financial system;
• Provisions to regulate financial holding companies and non-regulated entities to
take account of systemic risks that can emerge from the interaction between
regulated and unregulated institutions, activities and markets. The Minister of
Finance may subject an institution that engages in financial intermediation
activities to ongoing regulation and supervision by Bank Negara Malaysia if it poses
or is likely to pose a risk to overall financial stability;
• Strengthened business conduct and consumer protection requirements to
promote consumer confidence in the use of financial services and products;
• Strengthened provisions for effective and early enforcement and supervisory
intervention.
 Quick Reference of the FSA
(a) Requirements or restrictions in repealed laws which remain applicable:
Obtaining general insurance The prior written approval of Bank Negara Malaysia must be obtained
outside Malaysia (section 127 for property or liability to be insured, with an insurer outside Malaysia.
of FSA)
Illegal deposit-taking and Accepting deposits without a license granted under the FSA remains
advertisement for deposits prohibited. Issuing or facilitating a person to issue an advertisement in
(sections 136-138 of FSA) relation to making such illegal deposit is also prohibited.

Restriction on use of certain Use of certain words (e.g. bank, insurance) capable of being construed
words as indicating the carrying on of businesses which are regulated under
(section 139 of FSA/ 151 of the FSA is not allowed, except with the prior written approval of Bank
IFSA) Negara Malaysia.
Foreign exchange All prevailing foreign exchange administration rules remain effective
administration rules (sections through the issuance of new notices under the new laws to replace
213-216 of FSA) the current ECM Notices. Further information is available on Bank
Negara Malaysia’s website (http://www.bnm.gov.my/fxadmin).

National interest (sections The notice on dealings with specified persons (ECM 14) will be
216 of FSA) replaced with the new Direction issued pursuant to section 216 of the
FSA.
 Quick Reference of the FSA
(b) Removal of provisions on A company that wishes to carry on leasing, factoring, development
scheduled institutions finance or building credit business (previously referred to as scheduled
business under BAFIA) is no longer required to obtain a written
acknowledgement from Bank Negara Malaysia. Accordingly, prior
acknowledgments provided by Bank Negara Malaysia under BAFIA are
withdrawn.
The FSA provides for the Minister of Finance to subject an institution
that engages in financial intermediation activities to ongoing regulation
and supervision under the Act if it poses or is likely to pose a risk to
overall financial stability.
 Quick Reference of the FSA
(c) Transitional requirements
for existing shareholders of
licensed persons under FSA
(section 279(1) of FSA)
The FSA provides that no person shall hold 5% or more interest in shares
of a licensed person without the prior approval of Bank Negara
Malaysia. Interest in shares includes direct and effective interest under
Schedule 3 of the FSA. Section 279(1) further provides that a person
who holds 5% or more of an effective interest in shares of a licensed
person, but was not required to obtain an approval under section 45 of
the repealed BAFIA and section 67 of the repealed IA shall be deemed to
be approved under the FSA provided that he submits such documents or
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
was not required under the BAFIA or IA to obtain approval to hold such
interest in shares, or to divest such shares.
EXCHANGE CONTROL NOTICES
 Exchange Control Notices of Malaysia
(ECMs)
• Implementation of exchange controls
• Through Exchange Control Act 1953- The act
restricts dealings in gold and foreign
currencies, payments to and from residents,
issuance of securities outside Malaysia,
imports and exports and settlements.
• Policies & procedures by BNM via Exchange
Control Notices of Malaysia (ECMs)
 Foreign Exchange Administration
Policy
• Rules of Malaysia have been progressively
liberalized to facilitate a conducive and
competitive business environment by
enhancing the efficiency of the regulatory
delivery system.
• Some rules are retained mainly for prudential
purposes.
 Objective
• To ensure that the country’s limited financial
resources are used for purposes that will
benefit the Malaysian economy that is, to be
able to increase the country’s productivity and
earn foreign exchange.
• It is also a tool for Bank Negara Malaysia
(BNM) to monitor funds’ inflow and outflow,
and to foster a more dynamic economic
environment.
• As different exchange control rules are imposed
on residents and non-residents, it is very
important for a credit officer to know the
difference between a resident and a non-
resident.
• Some of the terms used for exchange control
purposes are also different from the normal
understanding, e.g. the term “credit facility”.
• The term “credit facility” itself is defined
differently for different Exchange Control Notices.
 Factors to consider by a credit officer of
banking institutions when considering
extension of credit facilities
The client itself Resident or non-resident

Credit facility Trade or non-trade financing facility

Currency denomination Foreign currency or RM

If facilities require prior approval (loan proceeds)

Usage of credit facility from the Controller, are the purposes able to
meet the criteria set in relevant ECM.

If credit facility is in FC Whether hedging against exchange rate

exposure is required.
 “Resident”
a) a citizen of Malaysia, excluding a person with
permanent resident status abroad and residing
abroad;
b) a non-citizen of Malaysia with permanent
resident status of Malaysia and residing
permanently in Malaysia;
c) a person, whether body corporate or
unincorporate, whether head office or branch,
incorporated or registered with, or approved by
any authority in Malaysia.
 “Non-resident”
a) Any person other than a resident;
b) An overseas branch/overseas
subsidiary/regional office/sales office/
representative office of a resident company;
c) Foreign Embassies, Consulates, High
Commissions, supranational or international
organisation recognised by the Malaysian
Government; and/or
d) A Malaysian citizen who has obtained
permanent resident status of a territory outside
Malaysia and is residing outside Malaysia.
ANTI MONEY LAUNDERING
 Money Laundering
• “Money Laundering” is the process where
illegal, or “dirty” money is put through a cycle
of transaction, or “washed”, so that it comes
out the other end as legal, or “clean” money.
 Anti Money Laundering Act 2001
(AMLA)
• Anti Money Laundering Act 2001 contains provisions for:-

the offence of money laundering;

prevention;

detection and prosecution of money laundering;

the forfeiture of property derived from or involved in money

laundering; and

the requirement of record keeping & reporting of suspicious

transaction by reporting institution.
 A “Money Laundering Offense” is
committed when someone:
• Engages directly or indirectly in a transaction that
involves proceeds of any 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 respects to, or
ownership of, proceeds of any unlawful activity.
Money Laundering Scheme
 How is money laundered?
• Illegal profits are introduced into the financial system
• By dividing large amounts of cash into less conspicuous
Placement smaller amounts that are deposited directly into a bank
account or by purchasing a series of monetary
instruments.

• Funds, which have entered the financial system, are then

distanced from their source

Layering • Done thru purchase and sales of investment instruments

or through multiple transfers of funds from different
accounts around the world disguised as payments for
goods or services.

• To integrate the illegal proceeds back into the economy as

Integration legitimate funds through legitimate transactions such as
business ventures, luxury assets, lending and investing.
 Anti Money Laundering Act 2001
• AMLA came into force on 15th January 2002
and is enacted by the Parliament of Malaysia
to provide for:
– The offence of money laundering;
– The measures to be taken for the prevention of
money laundering;
– The forfeiture of property derived from or
involved in money laundering and for matters
incidental thereto or connected therewith.
• The banks or financial institutions act as the
first line of defence to uncover money
launderers.
• The frameworks set by banks and financial
institutions to detect money laundering:
– Good compliance is good business;
– Due diligence procedures for high risk/ profit
sectors/ transactions/ activities.
– “Know your Customer” policy.
 Examples of Transactions That May
Trigger Suspicion
1. Customer is evasive or unwilling to provide information when requested, especially customer
who is exchanging currency equivalent to RM20,000 and above.
2. Transactions conducted are out of character with the usual conduct or profile of customers
carrying out such transactions.
3. Customer using different identifications each time conducting a transaction.
4. A group of customers trying to break up a large cash transaction into multiple small transactions.
5. The same customer conducting a few small transactions in a day or at different
branches/locations.
6. There are sudden or inconsistent changes in remittance/wire transfer sent/received transactions.
7. Remittances/wire transfers from different customers/jurisdiction being sent to the same
customer.
8. Customer frequently remitting money to non-cooperative countries/jurisdictions.
9. Customer exchanging small denomination notes into large denomination notes, in large quantity.
10. The same customer frequently exchanging local currency into foreign currency without apparent
economic or visible lawful purpose.
11. Customer frequently exchanging large amount of foreign currency but not exceeding the
equivalent of RM20,000 for each transaction.
12. Customer exchanging cash for numerous postal money orders in small amounts for numerous
other parties.
 Anti-Money laundering (Amendment)
Bill 2003
• Extend the scope of AMLA to include terrorism financing offence &
terrorist property.
• Prevention measures
– Develop customer acceptance policy & procedures.
– Conduct customer due diligence (reasonable care) & obtain
satisfactory evidence on transactions.
– Keep all records & documents of transactions for at least 6 years.
– Examine & clarify economic background & purpose of any transaction.
– Promptly submit suspicious transaction report to BNM when any
employees involves proceeds from unlawful activity.
– Appoint officers at senior management level to be compliance officer.
– Provides training & guidance to staff on the operation procedures &
controls.
 Financing of Terrorism
• Refers to carrying out transactions involving
funds that may or may not be owned by
terrorist, or that have been, or are intended to
be used to assist the commission of terrorism.