Financial Services Act 2013 and Islamic Financial

Services Act 2013 Come Into Force

The FSA and IFSA is the culmination of efforts to modernise the laws that govern the conduct and
supervision of financial institutions in Malaysia 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 also provide Bank Negara Malaysia
with the necessary regulatory and supervisory oversight powers to fulfil 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.
It is important that Malaysias regulatory and supervisory system is adequately equipped to respond
effectively to new and emerging risks so that confidence in the financial system is preserved and that the
critical financial intermediation activities which are vital to the economy are not disrupted. 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1984, Payment Systems Act 2003 and Exchange Control Act 1953 which are repealed on the same date.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 include:

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 Malaysias powers and functions under the law, and transparent assessment criteria
for authorizing institutions to carry on regulated financial business, and for shareholder suitability;

A clear focus on Shariah compliance and governance in the Islamic financial sector. In particular,
the IFSA provides a comprehensive legal framework that is fully consistent with Shariah in all
aspects of regulation and supervision, from licensing to the winding-up of an institution;

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

The new laws will place Malaysias 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 Malaysias economic transformation programme 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.
Copies of the FSA and IFSA are available on Bank Negara Malaysias website. Any query relating to the
provisions of FSA and IFSA may be directed to FSAandIFSA@bnm.gov.my.

Bank Negara Malaysia

1 July 2013

Bank Negara Malaysia also wishes to highlight the following salient requirements in FSA and IFSA,
mostly requirements brought forward from the repealed laws:
FSA and IFSA Quick reference for the general public
(Any query may be directed to FSAand IFSA@bnm.gov.my )

(a)

Requirements or restrictions in repealed laws which remain applicable:

Obtaining general
insurance/takaful outside
Malaysia (section 127 of FSA/
139 of IFSA)

The prior written approval of Bank Negara Malaysia must be obtained for
property or liability to be insured, with an insurer outside Malaysia. This
requirement has also been extended to the takaful sector.

FSA and IFSA Quick reference for the general public

(Any query may be directed to FSAand IFSA@bnm.gov.my )

(b)

(c)

Illegal deposit-taking and

advertisement for
deposits (sections 136-138 of
FSA/ 148-150 of IFSA)

Restriction on use of certain

words (section 139 of FSA/ 151
of IFSA)

Foreign exchange
administration rules (sections
213-216 of FSA/ 224-227 IFSA)

Accepting deposits without a licence granted under the FSA/IFSA remains

prohibited. Issuing or facilitating a person to issue an advertisement in relation to
making such illegal deposit is also prohibited.

Use of certain words (e.g. bank, insurance, takaful) 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.

All prevailing foreign exchange administration rules remain effective through

the issuance of new notices under the new laws to replace the current ECM
Notices. Further information is available on Bank Negara Malaysias website
(http://www.bnm.gov.my/fxadmin).

The notice on dealings with specified persons (ECM 14) will be replaced with
National interest (sections 216 of the new Direction issued pursuant to section 216 of the FSA and section 227 of
the IFSA.
FSA/ 227 of IFSA)

Removal of provisions on scheduled

institutions

Transitional requirements for existing

shareholders of licensed persons under
FSA (section 279(1) of FSA)

A company that wishes to carry on leasing, factoring, development 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.

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
Malaysiawebsite (http://www.bnm.gov.my).