HISTORY OF BANKING

LEGISLATION
 A. Central Bank Act 1958
- Govern Bank Negara Malaysia(BNM)
- Watson-Caine Report 1956 – main principles:
(a) Issuance of currency and saving to control the value of
currency.
(b) Act as a bank and financial advisor to govt.
(c) Make sure the financial stability and financial structure
in good condition.
(d) To influence credit situation so to give good effect to
Malaysia.
- Central Bank of Malaysia Act 1958 repealed.
 Central Bank of Malaysia Act 2009

- Consists 100 sections divide into 15 parts.

 s5. (1) The principal objects is to promote monetary
stability and financial stability conducive to the
sustainable growth of the Malaysian economy.
 The primary functions of the Bank are as follows:
- (a) to formulate and conduct monetary policy in
Malaysia;
- (b) to issue currency in Malaysia;
- (c) to regulate and supervise financial institutions
which are subject to the laws enforced by BNM
- (d) to provide oversight over money and foreign
exchange markets;
 Cont..
- (e) to exercise oversight over payment systems;
- (f) to promote a sound, progressive and inclusive
financial system;
- (g) to hold and manage the foreign reserves of
Malaysia;
- (h) to promote an exchange rate regime consistent
with the fundamentals of the economy; and
- (i) to act as financial adviser, banker and financial
agent of the Government.
- Part VII – Islamic financial business
 Establishment and functions of Shariah Advisory Council
 B. Banking Ordinance 1958
- To govern banks in Malaysia
- Banks belong to foreign countries or under control
of foreign countries cannot operate in federation of Malaya.
- No provision regarding banking secrecy
- Abolished 1973
 Banking Act 1973
- Provision on banking secrecy.
- Foreign owned bank cannot operate in Malaysia
- Abolished 1989
 Banking & Financial Institutions Act 1989
(BAFIA)
- Govern banks and financial institutions.
- Licence institution – finance company,
merchant banking, discount house (public
co.),money broking businesses and businesses
in 3rd Schedule ( building credit businesses,
credit token businesses, develpmt finance
buss., factoring and leasing business)
- Additional power to BNM eg. Part XI (s82-90) –
investigate, search and seizure
- Lots of new definitions and some has been
extended to cover larger scope eg. ‘Banking
business’.
- Part Xiii (s96-102)- banking secrecy and
exceptions that allow bank to make
disclosure are discussed thoroughly.
- Take into consideration the system and also
the people who manage the institution eg.
S55 – bank’s consent required to be director
of licensed institutions.
- BAFIA was abolished, replace with FSA 2013.
Financial Services Act 2013 (FSA)
 come into force on 30 June 2013
 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.
 The FSA amalgamate several separate laws to govern the
financial sector under a single legislative framework for the
conventional sectors respectively (the Banking and Financial
Institutions Act 1989 (BAFIA), Insurance Act 1996 (IA),
Payment Systems Act 2003 and Exchange Control Act 1953
which are repealed on the same date.
 FSA enables continuing receptions and
application of international stndrds (the
global capital requiremts , supervisory
stndrds, paymt stndrds, anti money
laundering and counter terrorist financing
stndrd, accounting stndrds and Basel III on
liquidity mgmt stndrds )
Cont…

 Part V – Prudential Requiremts (s46-s52)

 Division I – Standards of prudential (s47-
s52)
 Division II – Corporate Gorvenance (s53 –
s62)
 Division III – Transparency requirements.
(s63-66)
 Division IV – Auditors
 Part VIII – Business Conduct & Consumer
Protection
 Part XIII , Div 3 – Winding Up
Cont…
 BNM have power to regulate financial
intermediaries (leasing, factoring, building
credit buss eg. AEON Credit,M’sian Building
society Bhd etc. ) which were previously not
supervised and no guideline on how they were
regulated; previously need BNM
acknowledgemt to operate.
 BNM regulate and supervise FHC (Financial
Holding Co.) (eg. CIMB Group Holding Bhd.,
RHB Capital Bhd., Affin Holding BHd., Alliance
Finance Group Bhd. etc)
Cont…
C. Bills of Exchange Ordinance 1949
- Passed after Federation of Malaya (1948)
for standardization to the whole
federation.
- 1959 – Penang & Malacca – Ord. is known
as Act.
- 1965- Act is applicable to whole Malaysia
- 1978- revised – Bills of Exchange Act (a.
204)
D. Civil Law Act 1948
(a) Before 1948
(i)Penang & Mallaca – 2nd. Charter of Justice1826 –
English Law
(ii) Federated Malay States
- Federated Malay States Civil Enactment 1937
- English law
(iii) Unfederated Malay States
- Customary law
(b) After 1948 – Civil Law Ordinance 1956 – 7/4/56 –
s5(1) & s3(1) – Law of the land is applicable but
if there is lacuna, English law will be applicable
with consideration to situation and custom.
 Other Acts

 Anti Money Laundering, Anti Terrorism Financing

And Proceeds of Unlawful Activities Act 2001
 Development Financial Institution Act 2002
 Exchange Control Act 1953
 Money Services Business Act 2011
 Electronic Commerce Act 2006
 Islamic Financial Services Act 2013
 Unclaimed Money Act 1965 (amendment 2002)