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Chapter 7: Financial Legal

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).
Banking is the most highly regulated
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


Central Banking and Offshore
Bank of Financial Insurance Takaful Act Financial
Banking Act
Malaysia Act Institutions Act 1996 1984 Services
1958 Act 1989 Authority
Act 1996
Central Bank of Malaysia Act
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

Provision Administrati
s of CBA on

Central Bank of Malaysia
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
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
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
Central Bank of Malaysia Act

Reserve of external assets

Gold coin or bullion.
Notes, coin, bank balances and money at
call in such country or countries as may
been approved by the minister on the
recommendations of board.
Treasury bills.
Bills of exchange.
Central Bank of Malaysia
Relations with the Government
Banker and financial adviser to the
The boards shall keep the Minister
informed of:
i. the monetary and banking policy.
ii. the policies in respect of institutions in
relation to which the bank is conferred
with powers.
Central Bank of Malaysia Act
Relations with Banking and other
financial institutions
The policy on credit facilities.
Rates of interest payable, rates of discount,
rates of commission and other charges.
Reserve to be held by each banking
Any other matter relating to the supervision
and regulation of banking institutions and
other financial institutions pursuant to Islamic
Banking Act 1983, Insurance Act 1996,
Takaful Act 1984.
BAFIA 1989
Laws for the licensing and
regulation of the institutions
carrying on banking, finance
companies, merchant banking,
discount house and money-
broking business.
Integrated supervision of the
Malaysian financial system.
BAFIA 1989
To provide new laws for the licensing
and regulation of the institutions
carrying on banking, finance
company, merchant banking,
discount house and money-broking
business, for the regulation of
institutions carrying on certain other
financial businesses and for the
matters incidental thereto or
connected therewith.
BAFIA 1989
Act came into force on 1st October 1989.
Section 124 provides that BAFIA does not apply to
Islamic Bank
3 groups of institutions under BAFIA are:
Licensed institutions of commercial banks, finance
companies, merchant banks, discount houses and money
Scheduled institutions which include credit and charge
card companies, building societies, factoring and leasing
companies, and development finance institutions.
Non-scheduled institutions which include institutions
engaged in the provision of finance but other than those
named above.
Financial Requirements
Every licensed institution may be
required by the Central Bank to
A general reserve
A statutory reserve
A liquidity ratio
A capital adequacy ratio
Any amount or class of assets
Financial Requirements
Section 40 requires every licensed
institution to appoint an approved auditor
who meets the requirement laid down.
This section also lays down the duties of
the auditor.
Within 3 months after the close of each
financial year, every licensed financial
institution must submit to the central bank
its latest audited Balance Sheet, Profit and
Loss Accounts and Statement of Sources
and Uses of Funds together with the report
of auditors and directors.
BAFIA 1989
All licensed institutions are required
to hold a valid license granted by the
Every licensed institutions are
required to hold to affix or paint the
outside of its offices in a prominent
position and in a legible manner in
the national language its name and
words clearly indicating the business
for which it is licensed.
BAFIA 1989
A licensed finance company is
permitted to carry out the business of:-
i. receiving deposits on deposit account,
saving account or other similar account.
ii. lending of money, leasing or hire purchase.
iii. including that which is subject to the Hire
Purchase Act 1967.
iv. such other business as the Central Bank
may prescribe.
BAFIA 1989
Section 32 prohibits license financial
institutions to engage in wholesale
or retail except in connection with
the realization of security.
BNM is authorized to fixed minimum
and maximum amounts and tenor of
BAFIA 1989
Receiving Deposits
Section 26 provides that no unsolicited
calls may be made, without the written
consent of the Central Bank to:
Solicit or procure the making of a deposit;
Enter into or offer to enter into any agreement
with a view to the acceptance of a deposit, from
any person in Malaysia or outside Malaysia.
Section 81 provides that in the event
where a license institution is unable to
meet any f its obligations, the properties
of the institutions shall first be used.
BAFIA 1989
Marketing and advertising
Section 28 states that it an offense
to publish any statement which is
misleading, false or deceptive or to
conceal any material fact in relation
to deposit taking.
BAFIA 1989
control and
BAFIA limits the amount of shares a person
may hold.
No person shall be appointed as a CEO and
directors without the prior written consent
of the BNM.
Advances against own shares
Section 59 prohibits the granting of any
credit facilities against security of its own
shares or the shares of its holding company.
BAFIA 1989
Restriction of credit to single
Section 61 provides that no licensed
institutions shall grant to any single person
any credit facility in excess of any amount
prescribed by the guidelines issued by the
Except for the following transactions:-
i. loans given to other licensed institutions.
ii. credit facility relating to export and import
against letter of credit or bills of exchange.
iii. any transactions exempted by the BNM.
BAFIA 1989
Prohibitionof credit facilities to
director and officer
Section 62 (1) provides that unless
exempted by the BNM in writing, no
licensed institutions shall grant any
credit facility to the following:
i. any of is directors.
BAFIA 1989
Duty of secrecy
Section 97(1) provides that no directors or
officer of any licensed institution, whether
during his tenure of office, or during his
employment, or thereafter, disclose account
of any customer.
Except in the following situation:-
i. any person authorized by the BNM.
ii. customer has given written permission.
iii. customer declared bankrupt; corporation, winding
iv. civil proceedings.
v. garnishee order.
BAFIA 1989
Fourth Schedule of BAFIA list down
the penalties for the various offenses
and non-compliance with BAFIA.
Maximum; RM10 million and
imprisonment of a term of 10 years.
Offense not in list; RM500,000,
continuing offense an additional of
daily fine of RM1000.
BAFIA 1989
Classifications of loans as non-
Loans in arrears for 6 months or more.
In case of rescheduled credit facilities:-
i. before account classified as NPL
the period of time the account is in
arrears before rescheduling (if any) and
after rescheduling is 6 months or more.
ii. after account was classified as NPL
the rescheduled account shall continue o
be classified as non-performing.
BAFIA 1989
Suspension of interest on non-
performing loans
All interest accrued (but uncollected) from the date of an
account is classified as non-performing will be suspended
and credited to the interest in suspense account.
Recognized as income as and when it is collected in cash
by the financial institution.
NPL account may reclassified as Performing A NPL upon
the full settlement of all arrears in interest and principal.
Though, the funds for repayment should not be obtained
from the same financial institutions.
NPL and subsequently rescheduled will reclassified
Performing only when the repayment term has been
complied with a continues period of 12 months.
BAFIA 1989
Provision for bad & doubtful debts
All financial institutions must maintain a
general provision account of at least 1% of
total outstanding loans.
Substandard accounts which involve more
than a normal risk of loss due to certain
adverse factors such as sporadic delays in
debt servicing, unfavorable financial
conditions, etc.
Doubtful accounts collection in full is
unlikely and there is a high risk of ultimate
Powers of Supervision and
Control over Licensed Institutions
Part X of BAFIA 1989 gives the Central Bank
wide powers to examine and issue
directives for the supervision and control of
licensed institutions.
Section 69 provides the Central Bank may
at any time without giving notice, examine
any of the records and transactions of a
licensed institution.
Under Section 70, Minister of Finance can
direct Central Bank to examine into the
affairs of any licensed institution on
suspicion of any breach of BAFIA.
Investigations, Search & Seizure
Part XI Central Bank may appoint any
of its officer to be an investigating
This officer is given wide powers
Power to administer an oath or
affirmation to the person who is being
If the investigating officer has reason to
believe that an offence has been
committed, he may, inter alia:
Investigations, Search & Seizure
1. Enter any premises
2. Seize and detain any document or take
3. Search any person in the premises and if
required detain him and remove him
4. Break open, examine and search any
article, container or receptacle
5. Order any person suspected to have
committed an offence under BAFIA 1989
to furnish a statement in writing made
under oath or affirmation
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
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.
To ensure that the countrys limited
financial resources are used for
purposes that will benefit the
Malaysian economy that is, to be able
to increase the countrys 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
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

Usage of credit facility proceeds) 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.
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
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
organization recognized 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
ACT, 1983
Islamic Banking Act 1983
The Act provide for the licensing and
regulation of Islamic Banking business.
The Act inter alia has provisions on the
financial requirements and duties of an
Islamic Bank, ownership, control and
management of Islamic Banks,
restrictions on its business, powers of
supervision and control over Islamic
Bank and other general provisions
such as penalties etc.
Islamic Banking Act 1983
Licensing and regulation of Islamic
Banking business.
Provision on:-
i. The requirements and duties of an
Islamic Bank,
ii. Ownership, control & management of
Islamic banks,
iii. Restrictions on its business,
iv. Power of supervision & control over
Islamic bank and
v. Other general provisions such as
penalties etc.
Insurance Act 1996
Provision of act deal with the licensing
i. Insurers,
ii. Insurance brokers,
iii. Adjusters,
iv. Reinsurers.
Provide for the matters relating to
policies, insurance guarantee scheme
fund, enforcement powers of the
Central Bank, offences & other general
Insurance Act 1996
Deals with:-
i. Setting up of subsidiary & offices,
ii. Establishment of insurance fund,
iii. Direction and control of defaulting insurers,
iv. The control on management of licensee,
v. Accounts of licensee,
vi. Examination and investigation powers of the
Central Bank,
vii. Winding up,
viii.The appointment of directors & chief executive
ix. Outsourcing of core insurance activities.
x. Other general provisions such as penalties etc.
A scheme based on brotherhood, solidarity
& mutual assistance which provides for
mutual financial aid assistance to the
participants in case of need.
To reduce risk of loss due to misfortune.
Resources are pooled to help the needy
does not contradict Syariah.
In line with principal of compensation &
shared responsibility among the community.
Operations of Takaful business in Malaysia
are governed by the Takaful Act 1984.
Takaful Act 1984
An Act to provide for the regulation
of takaful business in Malaysia and
for other purposes relating to or
connected with takaful:-
i. Conduct of takaful business,
ii. International takaful business,
iii. Returns, investigations, winding-up
and transfer of business,
iv. Other general provisions such as
advice of Shariah Advisory Council,
indemnity etc.
Labuan Offshore Financial
Services Authority Act 1996
(Amended in 1998)
The act established the Labuan
Offshore Financial Services
Authority (LOFSA) as a single
regulatory to promote and
develop Labuan as International
Offshore Financial Centre.
Labuan Offshore Financial
Services Authority Act 1996
(Amended in 1998)

registration LOFS Insuranc
of comp
A e
and limited

Trust &
Banking Act
Offshore Offshore
Securities Insurance
Industry Act Act 1990

s Offshore
Act 1990
Act 1997

Labuan Trust
Trust Act
Act 1990
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

Strengthened business Provisions for differentiated

conduct and consumer regulatory requirements
protection requirements to that reflect the nature of
promote consumer financial intermediation
confidence in the use of activities and their risks to
financial services and Provisions to regulate financial holding the overall financial
products; companies and non-regulated entities to system;
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;
FSA and IFSA - Quick
a) Requirements or restrictions in repealed laws which remain applicable:

Obtaining general The prior written approval of Bank Negara

insurance/takaful outside Malaysia Malaysia must be obtained for property or liability
(section 127 of FSA/ 139 of IFSA) to be insured, with an insurer outside Malaysia.
This requirement has also been extended to the
takaful sector.

Illegal deposit-taking and Accepting deposits without a licence granted

advertisement for deposits under the FSA/IFSA remains prohibited. Issuing or
(sections 136-138 of FSA/ 148-150 facilitating a person to issue an advertisement in
of IFSA) relation to making such illegal deposit is also

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.

Foreign exchange administration All prevailing foreign exchange administration

rules rules remain effective through the issuance of new
(sections 213-216 of FSA/ 224-227 notices under the new laws to replace the current
IFSA) ECM Notices. Further information is available on
Bank Negara Malaysias website (

National interest The notice on dealings with specified persons (ECM

(sections 216 of FSA/ 227 of IFSA) 14) will be replaced with the new Direction issued
pursuant to section 216 of the FSA and section 227
FSA and IFSA - Quick
(b) Removal of A company that wishes to carry on leasing, factoring, development
provisions on finance or building credit business (previously referred to as scheduled
scheduled business under BAFIA) is no longer required to obtain a written
institutions acknowledgement from Bank Negara Malaysia. Accordingly, prior
acknowledgments provided by Bank Negara Malaysia under BAFIA are
The FSA/IFSA 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.

(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
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.

Islamic Deposit Investment Account

(principal guaranteed Shariah (non-principal guaranteed Shariah
contracts) contracts)
Wadiah (custodian) Mudarabah (profit sharing)
Qard (loan) Wakalah (agency)
Tawarruq (sale)
Impact of FSA and IFSA
1. Financial holding company restructuring
If impacted companies do not want to become financial holding
companies under the Act(s), they may pare down their stakes in
respective financial institutions to below 50%.
2. Corporate restructuring: insurers
Separation into two legal entities or divestment of one of the
3. Audit compliance
Impacted companies to allocate more resources to improve any
weaknesses in internal controls
4. Individual shareholding limit
Impacted individuals may need to pare down their stakes to 10%
or below.
5. Talent recruitment
Bank Negara Malaysia (BNM)/Central Bank of Malaysia approval
for appointment of chairman, director and chief executive officer;
a senior officer can only be appointed if the person fulfils the
requirements stated in the Act(s) and as specified by BNM.
Impact of FSA and IFSA
Impact to composite insurers, takaful operators
1. Requirement
Insurance and takaful companies holding composite licences shall not
carry on both life insurance/family takaful business and general
insurance/general takaful business.
2. Who will be impacted?
Licensed insurer/takaful operator lawfully carrying on both life
insurance/family takaful business and general insurance/general
takaful business
3. Who will be exempted?
Licensed professional reinsurer and retakaful operator
4. Timeline
Five years from the date of implementation of the Act(s) or longer as
specified by the Minister of Finance, on the recommendation of BNM
5. Non-compliance penalty
1. Imprisonment of 8 years or less
2. A fine of RM25 million or less
3. Or both
2002 (DFIA)
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 emphasizes 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
The Salient Features of the DFIA
Selective application of the Act
Recognizing the unique characteristics of each DFI,
DFIA is structured to allow flexible application of
the Act on selected DFI or on specific role, function
and operating structure of each selected DFI.
Centralized regulatory body
The Act empowers Bank Negara Malaysia to be the
administrator of the Act which serves as the
centralized supervisory body for the DFIs.
The centralized regulatory body plays a strong
coordination role in the overall supervision of DFIs.
It aims at ensuring effective and dynamic
supervision of DFIs.
The Salient Features of the DFIA
Monitoring role and objectives of DFIs
There is strong emphasis to ensure that the roles, objectives
and activities of the DFIs are consistent with the Government
policies and that these mandated roles are effectively and
efficiently implemented.
For this purpose, DFIA provides several mechanisms to
enable Bank Negara Malaysia to monitor the role and
objectives of DFIs.
Among others, DFIA requires DFIs to submit their proposed
business and development activities and projected sources
of funding on an annual basis to Bank Negara Malaysia.
In addition, the Bank is empowered to specify lending
activities of the DFIs.
DFIA also provides a mechanism to monitor the management
of Government-allocated funds to ensure that the funds are
utilized as specified.
The Salient Features of the DFIA
management and effective
corporate governance
DFIA lays emphasis on efficient management
and effective corporate governance by
prescribing the procedures for the appointment
of directors, chief executive officer and external
The Act also provides adequate mechanisms to
enhance disclosure of information in a timely
and transparent manner.
This is aimed at harnessing sufficient check and
balance and enhancing accountability by the
board of directors and management.
The Salient Features of the DFIA
Comprehensive supervision mechanism
DFIA provides a comprehensive supervision mechanism
which incorporates prudential rules, on-site and off-site
supervision, reporting requirements and disclosure
It also provides the regulator with the necessary powers
to deal with any mismanagement and malpractices.
Strengthen financial position and improve
efficiency of asset and liability management
The legislation provides the mechanism to strengthen
the financial position of DFIs through the specification of
prudential requirements such as in the management of
assets, capital and liquidity management.
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
AntiMoney Laundering Act 2001
contains provisions for:-
the offence of money laundering;


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
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
How is money laundered?
Illegal profits are introduced into the financial
Placeme system
By dividing large amounts of cash into less
nt conspicuous 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

Integrati To integrate the illegal proceeds back into the

on economy as 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
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
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
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.
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
Examine & clarify economic background & purpose of any
Promptly submit suspicious transaction report to BNM when
any employees involves proceeds from unlawful activity.
Appoint officers at senior management level to be compliance
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.
Learning Outcomes
At the end of the lessons, students should
be able to:-
Identify the various financial regulations.
To understand the objectives of BNM as
define 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).
End of Chapter 7