Malaysia Is a Country with Thirteen States and Three Federal Territories in Southeast Asia Kuala Lumpur is capital of Malaysia, and Putrajaya is the seat of the federal government, And Has A Total Landmass of 329,847 Square Kilometers (127,350 Sq Mi) Separated By The South China Sea Into Two Equally Sized Regions, Peninsular Malaysia and Malaysian Borneo.
The country is multi-ethnic and multi-cultural, which plays a large role in politics. Being the subject to the British Empire, Malaysian government system is very much like the parliamentary system of Westminster while its legal system is using English Common Law as its basis. With a population of more or less 28,334,135, Malaysia is the world's 43rd most populous country and the country is one of Asia's most developed countries by infrastructure.
The government system is closely modeled on the Westminster parliamentary system and the legal system is based on English Common Law. The constitution declares Islam the state religion while protecting freedom of religion.
Malaysia contains the southernmost point of continental Eurasia, Tanjung Piai. Located in the tropics, it is a mega diverse country, with large numbers of endemic flora and fauna.
Financial System Structure in Malaysia
The Malaysian financial system is structured into two major categories, Financial Institutions and Financial Market. The Financial Institutions comprise Banking System and Non-bank Financial Intermediaries. The Financial Market in Malaysia comprises four major markets namely: Money & Foreign Exchange Market, Capital Market, Derivatives Market, and Offshore Market.
Banking System
The banking system consists of Bank Negara Malaysia (Central Bank of Malaysia), banking institutions (commercial banks, finance companies, merchant banks and Islamic banks) and a miscellaneous group (discount houses and representative offices of foreign banks). The banking system is the largest component of the financial system, accounting for about 67% of the total assets of the financial system.
The summary background information and functions of the institutions mentioned above are set out as follows:-
Bank Negara Malaysia (BNM)
Commercial Banks
Finance Companies
Merchant Banks (also known as Investment Banks)
Islamic Banking
Discount Houses
Representative Offices of Foreign Banks in Malaysia
Non-Bank Financial Intermediaries
Non Bank Financial Intermediaries mainly comprise of Insurance Companies, Provident and Pension Funds and Development Finance Institutions. Summary background information and functions of these institutions are appended below: -
Provident and Pension Funds
Development Financial Institutions
Government policy goals for planned, shared and cost-effective development. The following are the main DFIs in Malaysia:-
Bank Pertanian Malaysia
Bank Industri & Technologi Malaysia
Bank Pembangunan & Infrastruktur Malaysia Berhad
EXIM Bank
Malaysian Industrial Development Finance (MIDF)
Insurance Industry
Currently, the total number of licensees under the Insurance Act 1996 stands at 141, comprising 64 insurers, 36 brokers and 41 adjusters. The 64 insurers that were licensed under the Act is categorized into the following groups:
• 10 life and general insurance companies (include Motor Insurance)
• 7 life insurance companies
• 36 general insurance companies (include Motor Insurance)
• 1 life reinsurance company
• 9 general reinsurance companies (include Motor Insurance)
• 1 composite reinsurance company
i) Life Insurance Industry
The life insurance industry is classified into four main categories: Whole Life; Endowment; Temporary; and "Others" category.
ii) General Insurance Industry
General insurance covers motor, marine, aviation & transit insurance (MAT), fire insurance and miscellaneous insurance.
iii) Reinsurance
A substantial amount of the insurance premiums collected used to flow overseas through international re-insurance.
iv) Insurance Intermediaries
Besides companies that are involved in life insurance, general insurance and reinsurance businesses, there are 37 insurance brokers and 42 insurance adjusters licensed to operate in the Malaysian insurance market.
a) Insurance Broker
b) Insurance Adjuster
v) Takaful (Islamic Insurance)
Takaful may be defined as a pact to guarantee and assist one another. In commerce, Takaful may operate within the Mudharabah (Sharing) and Tabarru (Donation) concept.
Financial Regulation
Among the main regulations and guidelines issued by the authorities to govern the financial system in Malaysia are:-
Banking and Financial Institutions Act, 1989 (BAFIA)
BAFIA 1989 is divided into 16 parts and covers a wide spectrum of subject matters related to the banking industry in Malaysia. The Act provides a framework that enables BNM to supervise and regulate three broad groups of financial institutions:
Licensed institutions
Scheduled institutions
Non-scheduled institutions
Control of establishment or acquisition of subsidiaries or opening of offices in Malaysia by a local or foreign licensed institutions
Maintenance of reserve fund, capital, net working funds, liquid assets by the financial institutions
Appointment of auditors, submission of financial statement, exhibition of financial statements, submission of statistics to BNM.
Insurance Act 1996
Under the Insurance Act 1996, BNM retains a substantial degree of regulatory control over the management, control of licensees and the critical aspects of their operations. Among the areas subject to BNM's approval under the Insurance Act 1996 are:
• The appointment of directors and chief executive officers;
• The acquisition or disposal of substantial interests in shares of a licensee;
• The establishment of offices and subsidiaries;
• Appointment of auditors and actuaries; and
• Outsourcing of core insurance activities.
The Insurance Act 1996 which became effective on 1 January 1997, has incorporated amendments made to the Insurance Act 1963. It incorporated changes needed to address deficiencies in the previous legislation. The subsidiary legislation, the Insurance Regulations 1996 (Regulations) saw several changes in 1999 in respect of minimum capital requirement as follows:-
• The minimum paid-up capital prescribed for a licensed local insurer underwriting direct insurance business, or surplus of assets over liabilities in the case of a licensed foreign insurer is set at RM50 million from 31 December 2000; and
• The absolute minimum margin of solvency (before taking into account insurance fund liabilities) for each class of insurance business of direct and local professional reinsurers is set at RM50 million from 1 January 2001."
Anti-Money Laundering Act 2001
The Anti-Money Laundering Act 2001 (AMLA) was gazetted on 5 July 2001. AMLA provides comprehensive new laws for the prevention, detection and prosecution of money laundering, the forfeiture of property derived from, or involvement in money laundering and the requirements for record keeping and reporting of suspicious transactions for reporting institutions.
AMLA addresses the following broad issues:-
• Money laundering offences
• Financial Intelligence Unit
• Reporting obligations
• Powers of investigation, search and seizure
• Powers of freezing, seizure and forfeiture of property
Exchange Control
The main objectives of the exchange control policy in Malaysia are to ensure that export proceeds are received promptly in Malaysia, to assist Bank Negara Malaysia in monitoring the settlement of payments and receipts in international transactions as well as to encourage the use of the nation's financial resources for productive purposes. For monitoring and compilation of balance of payments statistics, residents are required to complete statistical forms, Form P and Form R, for each payment or receipt of more than RM10,000 vis-a-vis non-residents.BNM has issued 16 Exchange Control Notices to-date.
The Establishment of Danaharta, Danamodal and Corporate Debt Restructuring Committee
Pengurusan Danaharta Nasional Berhad (Danaharta), Danamodal Nasional Berhad (Danamodal) and Corporate Debt Restructuring Committee (CDRC) was established in 1998 by the Malaysian Government during the Asian Financial Crisis. The objective is to further strengthen the resilience of the banking system during the crisis.
Danaharta
Danaharta is a special purpose limited liability company, established on 20 June 1998, which facilitates the:
• Transfer of problem assets from commercial banks in exchange for consideration;
• Financing and resolution of problem loans and assets;
• Expert management of problem loans through reconstruction and rehabilitation;
• Specialist management of loan security (real estate, shares, infrastructure, etc.);
• Expert and focused management of the process to maximize net returns (i.e. After costs) over a reasonable timeframe.
Danamodal
The objectives of Danamodal are to :
i) re-capitalize and strengthen the banking industry; and
ii) To help facilitate the consolidation and rationalization of the banking system to support the next phase of economic development.
Financial Market
The Financial Market mainly comprises:-
i) The Money and Foreign Exchange markets, and
ii) The Capital and Derivatives Markets
Apart from BNM, following are the statutory bodies established by Malaysian Government in regulating and supporting the above mentioned markets:-
Securities Commission
The Securities Commission (SC) is a statutory body entrusted with the responsibility of regulating and systematically developing Malaysia's capital markets. It has direct responsibility in supervising and monitoring the activities of market institutions and regulating all persons licensed under the Securities Industry Act, 1983 and Futures Industry Act, 1993. Its two main roles under the Securities Commission Act 1993 are:
• To act as a single regulatory body to promote the development of capital markets;
• To take responsibility for streamlining the regulations of the securities market, and for speeding up the processing and approval of corporate transactions.
Kuala Lumpur Stock Exchange
KLSE is the first stock exchange in Malaysia, governed by the Security Industry Act 1983 and supervised by the Security Commission (SC). It commenced public trading of shares on 9 May 1960. The KLSE is the legal and formal institution for securities trading in Malaysia. Like any other stock exchange, the KLSE provides and maintains a central market-place or facility for buyers and sellers to transact business in the shares, bonds and different types of securities of companies which are listed on the exchange.
