Exposure drafts issued by Bank Negara Malaysia

Bank Negara Malaysia has issued the following exposure drafts to the public for feedback:

(a) Climate Risk Management and Scenario Analysis

This exposure draft:

is intended to complement the Climate Change and Principle-based Taxonomy, the Value-based Intermediation Financing and Investment Impact Assessment Framework (“VBIAF”) and the VBIAF Sectoral Guides;
will apply to the following financial institutions:

licensed businesses, and financial holding companies approved, under the Financial Services Act 2013;
licensed Islamic banks, licensed takaful operator, licensed retakaful operator and financial holding companies approved, under the Islamic Financial Services Act 2013; and
development financial institutions prescribed under the Development Financial Institutions Act 2002.

sets out the proposed requirements and guidance on climate risk management and scenario analysis to ensure that financial institutions strengthen the management of financial risks stemming from climate change to enhance the resilience of the financial sector against climate-related risks and to facilitate an orderly transition to a low-carbon economy; and
will come into effect on 1 June 2022 subject to the transitional arrangements as set out in paragraph 4.1 thereof.

Feedback to the exposure draft must be submitted to Bank Negara Malaysia by 31 March 2022.

(b) Management of Participating Life Business

This exposure draft:

applies to life insurers licensed under the Financial Services Act 2013 carrying on participating life business. A “participating life policy” provides policy owners with the opportunity to participate in the profits of the insurance fund, in addition to receiving guaranteed benefits. The profits may be distributed by way of bonus determined by the licensed insurer;
sets out the requirements for the effective management of participating life business to promote the sustainability of the business and the protection of policy owners’ interests;
will also include clarity to the requirements governing the uses of estate, management of small and shrinking participating life fund, submission of bonus revision and independent review of the participating life business; and
will supersede, among others, the policy document on Management of Participating Life Business issued on 15 July 2015.

Feedback to the exposure draft must be submitted to Bank Negara Malaysia by 31 March 2022.

(c) Management of Insurance Funds

This exposure draft:

applies to insurers licensed under the Financial Services Act 2013;
is intended to ensure protection of policy owners’ interests through appropriate segregation of insurance funds, proper attribution of assets and liabilities in insurance funds, robust controls over withdrawals from insurance funds, and maintenance of proper records of policies and claims;
sets out, among others, requirements relating to the establishment, maintenance, composition and withdrawal of insurance funds;
will supersede, among others, the policy document on Management of Insurance Funds issued on 17 December 2018.

Feedback to the exposure draft must be submitted to Bank Negara Malaysia by 31 March 2022.

(d) Governance, Risk Management, and Operations for Money Services Business

This exposure draft

applies to persons licensed under the Money Services Business Act 2011 (“MSB Licensees”);
sets out, among others, the minimum standards that MSB Licensees must observe in implementing sound governance, appropriate risk management and robust internal control systems for their business. The standards will be put in place to strengthen consumer protection and safeguard the industry from being used as a conduit for illegal activities, money laundering and terrorism financing;
will supersede the Guidelines on Governance and Operational Requirements on Conduct of Money Services Business issued on 15 October 2012, the Guidelines on Risk Management and Internal Controls for Conduct of Money Services Business issued on 6 December 2012 and the other guidelines/circulars/notices set out in Appendix I thereof.

Feedback to the exposure draft must be submitted to Bank Negara Malaysia by 28 February 2022.

(e) Payment Cards Framework

This exposure draft:

will apply to the following financial institutions:

issuers of credit card, debit card and international brand prepaid card which are approved under the Financial Services Act 2013 or the Islamic Financial Services Act 2013;
merchant acquirers of merchant acquirers of credit card, debit card and international brand prepaid card registered under the Financial Services Act 2013 or the Islamic Financial Services Act 2013; and
operators of payment systems approved under the Financial Services Act 2013 or the Islamic Financial Services Act 2013;

is to ensure that the cost of accepting payment cards continues to remain fair and reasonable through revision of the interchange fee ceilings to reflect the latest underlying cost.
outlines the measures which enable merchants to manage their payment acceptance cost and address other distortions and frictions in the payment card market to foster greater usage and acceptance of payment cards.

Feedback to the exposure draft must be submitted to Bank Negara Malaysia by 15 February 2022.

Bank Negara Malaysia issues Code of conduct for Malaysia wholesale financial markets

Bank Negara Malaysia has issued a policy document which sets out the code of conduct for Malaysia’s wholesale financial markets on 31 December 2021.

The policy document:

is intended to apply to all market participants who act in the wholesale financial markets, either acting in the capacity as a sell-side or buy-side entity, and across various money market and foreign exchange products;
updates and set outs the principles and standards to be observed by market participants in the wholesale financial markets, that is, money market and foreign exchange market, including over-the-counter derivatives market for interest rates or exchange rates;
also sets out the eligibility requirements for dealers and brokers, the market conduct and internal control requirements to safeguard professionalism and integrity of the wholesale financial markets; and the role of industry associations in preserving market integrity; and
will come into on 31 January 2022 save for paragraphs 8.1 to 8.3 and 28.2 to 28.4 which will take effect on 31 July 2022.

Wholesale Market Conduct Practices Guidance Document

This guidance document:

came into effect on 31 December 2021;
is applicable to licensed banks, licensed investment banks, licensed Islamic banks and prescribed development financial institutions. Other types of market participants are encouraged to adopt the guidance where relevant to their participation in wholesale financial markets;
is intended to provide guidance to market participants on managing conduct risks arising from activities in the wholesale financial markets such as (i) the setting up and operating effective trade and communications surveillance programmes; and (ii) forming a strong conduct control environment.
supersedes the notification on Managing Unauthorised Trading and Market Manipulation issued on 20 November 2015 (which is not publicly available).

Discussion Paper on Licensing Framework for Digital Insurers and Takaful Operators

A discussion paper on the Licensing Framework for Digital Insurers and Takaful Operators was issued by Bank Negara Malaysia on 4 January 2022 seeking for public feedback by 28 February 2022.

The discussion paper:

states that Bank Negara Malaysia is developing the Digital Insurance and Takaful Framework (“Framework”) to facilitate the licensing of a new set of digital insurers and takaful operators (“DITOs”) under the Financial Services Act 2013 and Islamic Financial Services Act 2013, respectively;
provides that existing licensed insurer and takaful operator wishing to carry out digital insurance and takaful business separately from their existing business, may apply to carry on digital insurance or takaful business through a separate entity (that is, its subsidiary) or through a joint venture agreement. However, the existing licensed insurer and takaful operators are not required to obtain a separate licence in digitalising their current business operations;
sets out the proposed entry requirements and key assessment criteria for the licensing of DITOs, potential temporary or foundational regulatory flexibilities, the overall regulatory framework, as well as market infrastructure to support the development of digital insurance and takaful in Malaysia;

Bank Negara Malaysia has indicated that separate policy document(s) will be issued to address the prudential and business conduct requirements relating to DITOs later in 2022.

Issue of Guidelines on Conduct for Capital Market Intermediaries

The Guidelines on Conduct for Capital Market Intermediaries (“Conduct Guidelines”) was issued by the Securities Commission Malaysia on 31 December 2021.

The Conduct Guidelines:

apply to:

a holder of Capital Markets Services Licence;
a registered person;
a person registered under section 76A of the Capital Markets and Services Act 2007 to provide capital market services, (collectively “CMI”); and
its representatives, in the direct employment of, or acting for, or in arrangement with, a CMI, who carries on for that CMI any capital market related service, whether or not remunerated, and whether his remuneration, if any, is by way of salary, wages, commission or otherwise;

sets out the minimum standards of conduct that must be adhered to by a CMI and its representatives and these standards shall not be excluded or modified by the CMI through any provision, clause or term contained in any agreement, contract or document provided to its clients; and
comes into effect on 1 April 2022.

Securities Commission Malaysia issues Guidelines on Corporate Governance for Capital Market Intermediaries

The Securities Commission Malaysia issued the Guidelines on Corporate Governance for Capital Market Intermediaries (“Corporate Governance Guidelines”) on 31 December 2021. Save for paragraphs 5.04 – 5.08 which will only come into effect on 1 July 2022, the other provisions of the Corporate Governance Guidelines came into effect on 31 December 2021.

Pursuant to the Corporate Governance Guidelines:

it only applies to holders of Capital Markets Services Licence which is a company (“CMSL Holder”);
sets out the requirements which a CMSL Holder must comply to ensure that robust corporate governance structure, as well as policies and practices are in place to safeguard against unethical conduct, mismanagement and fraudulent activities; and
if the CMSL Holder is subject to more than one governance related requirements, the stricter requirement will apply.

Direction on Dealings with Specified Person and in Restricted Currency

A new Direction on Dealings with Specified Person and in Restricted Currency (“Direction”) was issued by Bank Negara Malaysia and came into effect on 3 January 2022.

The Direction:

amends the definition of “Specified Person”;
permits a person, without having to obtain the prior written approval of Bank Negara Malaysia, to enter into, or make or receive payment arising from an international trade with or involving a Specified Person:

in goods, where such trade is licensed under the Customs Act 1967, or does not involve movement
of goods into or out of Malaysia; or
in services, where such trade is allowed in writing by a relevant authority exercising statutory power in Malaysia, or does not involve provision of services to or from a person in Malaysia; and