Revised Foreign Exchange Policy Notices with effect from 1 June 2022

Introduction

On 1 June 2022, the Central Bank of Malaysia, Bank Negara Malaysia (“BNM”), issued a revised set of Foreign Exchange Policy Notices (“FEP Notices”) which came into effect on the same date. The new FEP Notices supersede the previous Foreign Exchange Notices that were issued and have been in effect since 15 April 2021 (“Previous Notices”).

Key Amendments under FEP Notices

FEP Notice 1: Dealings in Currency, Gold and Other Precious Metals

The restrictions and conditions imposed under the Previous Notices on a nonresident buying or selling foreign currency (“FC”) against ringgit on spot basis for its own account with an appointed overseas office (“AOO”) of the licensed onshore bank’s banking group are no longer applicable.
The restrictions and conditions imposed under the Previous Notices on a nonresident buying or selling FC against ringgit on forward basis for its own account with a licensed onshore bank (“LOB”) or an AOO have been consolidated/merged into paragraph 6(1)(b) of Part B of FEP Notice 1 and subject to similar restrictions and conditions.
Consolidation of paragraphs 8 and 9 of Part B of FEP Notice 1 whereby a nonresident entity is allowed to buy and sell foreign currency against ringgit on behalf of an entity within its group (the “Principal”) with a LOB or an AOO provided that (i) the Principal is not a non-resident financial institution; (ii) the Principal complies with paragraphs 1 and 2 of Part A of FEP Notice 1 where it is a resident; (iii) the Principal complies with paragraphs 6 and 7 of Part B of FEP Notice 1 where it is a non-resident.

FEP Notice 2: Borrowing, Lending and Guarantee

One of the material amendments introduced by the FEP Notices is paragraph 21 of Part G of FEP Notice 2 relating to giving and obtaining of financial guarantee. The revised paragraph 21 of Part G of FEP Notice 2 clarifies that a non-bank resident guarantor is also allowed to give a financial guarantee in any amount to secure borrowing in FC by a non-resident from a non-resident financial institution (“NRFI”).
Under the revised paragraph 21 of Part G of FEP Notice 2:

1. a non-bank resident guarantor is not allowed to give financial guarantee to secure borrowing in FC obtained by a non-resident borrower from a NRFI if the underlying borrowing is or will be utilised by the resident guarantor. Such financial guarantee will be deemed as a borrowing in FC by the resident guarantor, and the resident guarantor will need to comply with Part A or B of FEP Notice 2;
2. a non-bank resident guarantor is not allowed to give financial guarantee to secure borrowing obtained by a non-resident borrower where the resident guarantor has entered a formal or informal arrangement to make repayment of the borrowing in foreign currency other than under a callupon by the lender in the event of default. Such repayment will be deemed as an investment in foreign currency asset, and the resident guarantor will need to comply with Part A or B of FEP Notice 3.

It is further explained and clarified in FEP Notice 2 and the “Frequently Asked Questions (FAQs)” relating to FEP Notice 2 that the “call-upon” of financial guarantee shall be initiated by the lender in its prerogative in writing to the resident guarantor. It is stated that a resident guarantor may not initiate a “callupon” of a financial guarantee. In the event a resident guarantor intends to voluntarily liquidate a financial guarantee to support the borrower, the prior approval from BNM is required to be obtained by the resident guarantor in accordance with FEP Notice 3.
It is also stated in FEP Notice 2 and the “Frequently Asked Questions (FAQs)” relating to FEP Notice 2 that an “event of default” prior to a call-upon of a financial guarantee by the lender shall be treated by the lender in accordance with the requirements under International Financial Reporting Standard 9 (IFRS 9) or any equivalent accounting standards adopted by the lender.

FEP Notice 4: Payment and Receipt

Under the revised paragraph 4(d) of Part C of FEP Notice 4, a resident is free to pay or receive FC to or from another resident for settlement of a miscellaneous expense incurred outside Malaysia between a resident individual residing in Malaysia and a resident individual residing outside Malaysia.
“Miscellaneous expense” is defined or explained in FEP Notice 4 as trade of goods or services or primary income or secondary income², and includes fee, commission, royalty or income, wage, salary, dividend, profit and interest that is of reasonable amount and infrequent in nature, including but not limited to holiday expenses abroad, medical expenses abroad and advance or reimbursement for purchase of goods and services abroad on behalf of a resident individual residing in Malaysia.
The revised paragraph 14 of Part F of FEP Notice 4 allows a resident individual to open and maintain a foreign currency account with a LOB or a NRFI, jointly with a non-resident individual. Under the Previous Notice 4, this was only permitted where the non-resident individual is an immediate family member.
The revised paragraph 18 of Part F of FEP Notice 4 allows a non-resident to open and maintain a foreign currency account with a LOB, jointly with a resident individual. Under the Previous Notice 4, this was only permitted where the resident individual is an immediate family member.

FEP Notice 7: Export of Goods

Amendments to the reporting and notification requirements have been introduced by FEP Notice 7. Under the revised FEP Notice 7:
a resident exporter that meets the requirement as stipulated in Part C of Notice 7, that is annual gross export of goods exceeding RM250 million equivalent in the preceding year, shall submit a report on Export of Goods to BNM only as and when required by BNM. It is further explained in the “Frequently Asked Questions (FAQs)” relating to FEP Notice 7 that if a resident exporter is required to submit export of goods report, such requirement will be communicated to the exporter via a letter from BNM;
a resident exporter that did not receive any of its proceeds from export of goods as referred to under paragraph 1(c) of Part A of this Notice 7 within 24 months from the date of shipment, shall notify BNM on the outstanding export of goods proceeds within 21 days after the end of each calendar year via https://bnm.my/fep .

The FEP Notices which come into operation on 1 June 2022 are available at https://www.bnm.gov.my/fep .

Conclusion

BNM continues to maintain a liberal foreign exchange policy, which is part of its broad prudential toolkits to maintain monetary and financial stability².

BNM is committed in ensuring that the foreign exchange policy continues to support the competitiveness of the Malaysian economy by facilitating a more conducive environment for domestic and cross-border real economic activities³.

The recent changes/amendments in the FEP Notices provide further clarifications and elaborations to some of the earlier foreign exchange policy requirements and conditions imposed by BNM, further liberalising certain exchange controls/restrictions to promote economic growth in Malaysia.

Endnotes:

1 Please note that the list of amendments set out in this article is not exhaustive.

2 As defined in the Balance of Payments and International Investment Position Manual (Sixth Edition) issued by the International Monetary Fund and as amended or revised from time to time.

3 Bank Negara Malaysia “Overview” available at https://www.bnm.gov.my/fep. ⁴ Bank Negara Malaysia “Overview” available at https://www.bnm.gov.my/fep.